<PAGE>
FILE PURSUANT TO RULE 424(b)(4)
REGISTRATION NO. 333-32236
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PROSPECTUS
JUNE 7, 2000
[LOGO]
12,500,000 SHARES OF COMMON STOCK
OF
UBIQUITEL INC.
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<TABLE>
<S> <C>
THE OFFERING:
- We are offering 12,500,000 shares of our
common stock.
- We have granted the underwriters an option
to purchase an additional 1,875,000 shares
from us to cover over-allotments.
- This is our initial public offering.
- Closing: June 12, 2000.
SYMBOL & MARKET:
- UPCS/Nasdaq National Market
</TABLE>
<TABLE>
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Per Share Total
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<S> <C> <C>
Public offering price: $8.00 $100,000,000
Underwriting fees(1): $0.50 $ 6,250,000
Proceeds to UbiquiTel Inc.: $7.50 $ 93,750,000
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</TABLE>
(1) Plus the other underwriting compensation described under
"Underwriting."
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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DONALDSON, LUFKIN & JENRETTE
BANC OF AMERICA SECURITIES LLC
DLJDIRECT INC.
<PAGE>
(Pictures)
[MAP OF UNITED STATES SHOWING THE REGISTRANT'S SPRINT PCS MARKETS]
<PAGE>
TABLE OF CONTENTS
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PAGE
<S> <C>
Prospectus Summary................. 1
Risk Factors....................... 7
Forward-Looking Statements......... 22
Use of Proceeds.................... 23
Dividend Policy.................... 24
Capitalization..................... 25
Dilution........................... 26
Unaudited Pro Forma Condensed
Consolidated Financial Data...... 27
Selected Historical Consolidated
Financial and Operating Data..... 35
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 37
Business........................... 48
</TABLE>
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PAGE
<S> <C>
The Sprint PCS Agreements.......... 74
Description of Certain
Indebtedness..................... 88
Management......................... 93
Principal Stockholders............. 104
Certain Transactions............... 106
Regulation of the Wireless
Telecommunications Industry...... 111
Description of Capital Stock....... 116
Shares Eligible for Future Sale.... 124
Underwriting....................... 126
Legal Matters...................... 130
Experts............................ 130
Available Information.............. 131
Index to Financial Statements...... F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION THAT WE BELIEVE IS ESPECIALLY IMPORTANT
CONCERNING OUR BUSINESS AND THIS OFFERING OF COMMON STOCK. IT DOES NOT CONTAIN
ALL OF THE INFORMATION THAT MAY BE IMPORTANT TO YOUR INVESTMENT DECISION. YOU
SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING "RISK FACTORS" AND OUR FINANCIAL
STATEMENTS AND RELATED NOTES, BEFORE DECIDING TO INVEST IN OUR COMMON STOCK.
UBIQUITEL
OVERVIEW
We are the exclusive provider of Sprint PCS digital wireless personal
communications services, generally known as PCS, to four midsize and smaller
markets in the western and midwestern United States. Through our management
agreement with Sprint PCS, we have the exclusive right to provide 100% digital,
100% PCS products and services under the Sprint and Sprint PCS brand names in
our markets which include a total population of approximately 7.7 million
residents. We are among 18 companies, which we believe are unrelated to each
other and to Sprint PCS, that have entered into management agreements with
Sprint PCS to provide Sprint PCS products and services in markets throughout the
United States. Sprint PCS, together with its affiliates including us, operates
the largest all-digital, all-PCS nationwide wireless network in the United
States, already covering more than 190 million residents in more than 330
metropolitan markets. However, Sprint PCS does not currently offer PCS services
in every state in the United States.
The majority of our network will cover portions of California, Nevada,
Washington, Idaho, Montana, Utah, Indiana and Kentucky. We have commenced
limited operations in one of our markets, which together with our recent
acquisition of the Spokane, Washington market from Sprint PCS, cover
approximately 500,000 residents. We currently have approximately 9,000
subscribers. We expect to cover approximately 55% of the resident population in
our markets by the end of 2001 and expect to cover approximately 63% upon
completion of our build-out.
We are a development stage company with very limited operations and
revenues, significant losses and substantial future capital requirements. From
our inception on September 29, 1999 through December 31, 1999, we incurred
losses of approximately $2.0 million. On a pro forma basis, after giving effect
to various transactions described in "Unaudited Pro Forma Condensed Consolidated
Financial Data," loss available to common stockholders from our inception
through December 31, 1999 would have been approximately $45.5 million and loss
available to common stockholders would have been approximately $20.4 million for
the three months ended March 31, 2000. We expect to continue to incur
significant operating losses and to generate significant negative cash flow from
operating activities until at least 2003 while we develop and construct our PCS
network and build our customer base.
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BUSINESS STRATEGY
Our business strategy includes the following elements:
- Capitalize on affiliation with Sprint PCS;
- Capitalize on experienced management team;
- Execute optimal network build-out plan;
- Utilize strategic third party relationships in network build-out;
- Implement effective operating structure with a focus on customer service;
and
- Focus on midsize and smaller markets.
BACKGROUND
We were organized on September 29, 1999 as a corporation under the laws of
Delaware. Our address and telephone number are 1 Bala Plaza, Suite 402, Bala
Cynwyd, Pennsylvania 19004, (610) 660-9510.
2
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SUMMARY FINANCIAL DATA
(In thousands)
UBIQUITEL INC.
The selected summary financial data presented below for the period from
September 29, 1999 (inception) through December 31, 1999, are derived from the
audited consolidated financial statements of UbiquiTel Inc. and subsidiaries.
The selected summary financial data presented below as of and for the
three-month period ended March 31, 2000 have been derived from unaudited
consolidated financial statements of UbiquiTel Inc. and its subsidiaries, which
have been prepared on the same basis as UbiquiTel Inc. and subsidiaries audited
financial statements and, in the opinion of UbiquiTel, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for these
periods. The results of operations for the three months ended March 31, 2000 are
not necessarily indicative of the results for the full year. The data set forth
below should be read in conjunction with UbiquiTel Inc.'s consolidated financial
statements and accompanying notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
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FROM
SEPTEMBER 29,
1999 (INCEPTION) THREE MONTHS
TO DECEMBER 31, ENDED
1999 MARCH 31, 2000
---------------- ---------------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.............................................. $ -- $ 69
Expenses:
General and administrative expenses excluding non-cash
compensation charges.................................... 554 907
Non-cash compensation expense for general and
administrative matters.................................. 1,395 --
Amortization of deferred stock compensation expense
granted to employees for general and administrative
matters................................................. -- 119
Interest expense (income)................................. 29 (35)
------- -------
Loss before extraordinary item.............................. $(1,978) $ (922)
======= =======
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<TABLE>
<CAPTION>
AS OF
MARCH 31, 2000
---------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $33,729
Total assets.............................................. 52,363
Long-term debt............................................ 5,812
Total stockholders' equity................................ 37,487
</TABLE>
3
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SPOKANE DISTRICT
The selected summary financial data presented below for each of the three
years in the period ended December 31, 1999 are derived from the audited
financial statements of the Spokane District (wholly owned by Sprint Spectrum
L.P.), the predecessor of UbiquiTel Inc. and subsidiaries. The selected summary
financial data presented below as of March 31, 2000 and for the three-month
periods ended March 31, 1999 and March 31, 2000 have been derived from unaudited
financial statements of the Spokane District, which have been prepared on the
same basis as the Spokane District's audited financial statements and, in the
opinion of Sprint Spectrum L.P.'s management, include all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial position and results of operations for these periods. The
results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the full year.
The data set forth below should be read in conjunction with the Spokane
District's financial statements and accompanying notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
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<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................................ $ 1,246 $ 3,280 $ 5,625 $ 1,136 $ 1,574
Expenses:
Cost of service and equipment......................... 2,903 3,970 5,046 747 779
Selling, general and administrative expense........... 8,168 4,470 5,419 997 1,214
Depreciation.......................................... 2,968 3,112 3,471 828 931
------- ------- ------- ------- -------
Expenses in excess of net revenues...................... $12,793 $ 8,272 $ 8,311 $ 1,436 $ 1,350
======= ======= ======= ======= =======
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<CAPTION>
AS OF MARCH 31,
2000
---------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets purchased.................................... $19,025
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UBIQUITEL INC. ON A PRO FORMA BASIS
The unaudited selected summary pro forma financial data presented below for
the period ended December 31, 1999 and the three months ended March 31, 2000,
and as of March 31, 2000, gives effect to various transactions described in
"Unaudited Pro Forma Condensed Consolidated Financial Data." The data set forth
below should be read in conjunction with UbiquiTel Inc.'s and the Spokane
District's financial statements and accompanying notes, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Unaudited
Pro Forma Condensed Consolidated Financial Data" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1999 2000
-------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.............................................. $ 5,625 $ 1,643
Operating loss............................................ (11,059) (2,507)
Loss available to common stockholders..................... (45,451) (20,401)
<CAPTION>
AS OF MARCH 31, 2000
---------------------------
(UNAUDITED)
BALANCE SHEET DATA:
<S> <C> <C> <C>
Cash and cash equivalents................................. $295,736
Total assets.............................................. 363,340
Total liabilities and stockholders' equity................ 363,340
</TABLE>
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered........................................ 12,500,000 shares
Common Stock to be Outstanding After the Offering........... 62,763,604 shares
Nasdaq National Market Symbol............................... "UPCS"
</TABLE>
Unless otherwise indicated, all information in this prospectus:
- reflects the conversion of all outstanding shares of preferred stock into
shares of common stock and the cancellation of our non-voting common stock
upon the closing of this offering;
- gives effect to a two-for-one stock split effective as of the date of this
prospectus;
- assumes no exercise of the underwriters' over-allotment option;
- excludes 4,080,000 shares of common stock reserved for issuance under our
2000 equity incentive plan including outstanding options to purchase
1,215,000 shares of our common stock at a weighted average exercise price
of $2.38 per share;
- excludes 2,550,000 shares of common stock issuable upon the exercise of
outstanding options at an exercise price of $0.50 per share;
- excludes 1,148,804 shares of common stock issuable upon the exercise of
outstanding warrants at a weighted average exercise price of $0.005 per
share;
- excludes 3,579,000 shares of common stock issuable upon the exercise of
outstanding warrants at an exercise price of $11.37 per share that were
issued in connection with our sale of our senior subordinated discounted
notes; and
- excludes 86,183 shares of common stock issuable upon the exercise of
warrants at an exercise price equal to the initial public offering price
per share that will be issued in exchange for warrants originally issued
in connection with our sale of senior subordinated discount notes.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO THE
OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING THE COMMON
STOCK WE ARE OFFERING. THE CAUTIONARY STATEMENTS SET FORTH BELOW AND ELSEWHERE
IN THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH ACCOMPANYING
FORWARD-LOOKING STATEMENTS INCLUDED UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "BUSINESS" AND ELSEWHERE
HEREIN.
RISKS PARTICULAR TO OUR RELATIONSHIP WITH SPRINT PCS
IF WE FAIL TO COMPLETE THE BUILD-OUT OF OUR PCS NETWORK BY THE DATES DESCRIBED
IN OUR MANAGEMENT AGREEMENT, SPRINT MAY TERMINATE THE AGREEMENT AND PURCHASE OUR
OPERATING ASSETS AT A DISCOUNT TO MARKET VALUE WITHOUT FURTHER STOCKHOLDER
APPROVAL, AND WE WOULD NO LONGER BE ABLE TO OFFER SPRINT PCS SERVICES
Our agreements with Sprint PCS require that we provide network coverage to a
minimum network coverage area within specified time frames. We may amend our
agreements with Sprint PCS in the future to expand our network coverage. A
failure to meet our build-out requirements for any one of our individual markets
would constitute a breach of our management agreement with Sprint PCS that could
lead to a termination. If the management agreement is terminated, we will no
longer be able to offer Sprint PCS products and services, and we may be required
to sell our operating assets to Sprint PCS. This sale may take place without
further stockholder approval and for a price equal to 72% of our entire business
value. Our entire business value includes the value of our right to use the
spectrum licenses in our markets, our business operations and other assets. The
provisions of our management agreement that allow Sprint PCS to purchase our
operating assets at a discount could adversely affect the value of our common
stock, may limit our ability to sell our business and may reduce the value a
buyer would be willing to pay for our business. See "The Sprint PCS
Agreements--Management Agreement--Rights on Termination."
WE MAY ENCOUNTER DIFFICULTIES IN COMPLETING THE BUILD-OUT OF OUR NETWORK,
WHICH COULD INCREASE COSTS AND DELAY COMPLETION OF OUR BUILD-OUT
As part of our build-out, we must successfully lease or otherwise retain
rights to a sufficient number of radio communications and network control sites,
complete the purchase and installation of equipment, build out the physical
infrastructure and test the network. Some of the radio communications sites are
likely to require us to obtain zoning variances or other local governmental or
third party approvals or permits. Additionally, we must retain rights to a
sufficient number of tower sites, which requires us to obtain local regulatory
approvals. The local governmental authorities in various locations in our
markets have, at times, placed moratoriums on the construction of additional
towers and radio communications sites. We may also have to make changes to our
radio base station network design as a result of difficulties in the site
acquisition process. Additionally, the Federal Communications Commission
requires that our PCS network must not interfere with the operations of
microwave radio systems, and Sprint PCS may be required to relocate incumbent
microwave operations to enable us to complete our build-out. Any failure to
construct our portion of the Sprint PCS network on a timely basis may affect our
ability to provide services in our markets on a schedule consistent with our
current business plan, limit our network capacity or reduce the number of new
Sprint PCS subscribers. Any significant delays could have a material adverse
effect on our business.
7
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IF WE FAIL TO MEET THE TECHNICAL STANDARDS DESCRIBED IN OUR MANAGEMENT
AGREEMENT, SPRINT MAY TERMINATE THE AGREEMENT AND PURCHASE OUR OPERATING ASSETS
AT A DISCOUNT TO MARKET VALUE WITHOUT FURTHER STOCKHOLDER APPROVAL, AND WE WOULD
NO LONGER BE ABLE TO OFFER SPRINT PCS SERVICES
Our agreements with Sprint PCS require us to build our PCS network in
accordance with Sprint PCS' technical requirements. Sprint PCS can, at any time
with at least 30 days' prior notice to us, adjust the technical requirements for
the network. A failure to meet these technical requirements would constitute a
breach of our management agreement with Sprint PCS that could lead to a
termination. If the management agreement is terminated, we will no longer be
able to offer Sprint PCS products and services, and we may be required to sell
our operating assets to Sprint PCS. This sale may take place without further
stockholder approval and for a price equal to 72% of our entire business value.
The provisions of our management agreement that allow Sprint PCS to purchase our
operating assets at a discount could adversely affect the value of our common
stock, may limit our ability to sell our business and may reduce the value a
buyer would be willing to pay for our business. See "The Sprint PCS
Agreements--The Management Agreement--Rights on Termination."
THE TERMINATION OF OUR MANAGEMENT AGREEMENT WITH SPRINT PCS OR SPRINT PCS'
FAILURE TO PERFORM ITS OBLIGATIONS UNDER THE AGREEMENT WOULD SEVERELY RESTRICT
OUR ABILITY TO CONDUCT OUR BUSINESS AND, IF OUR MANAGEMENT AGREEMENT IS
TERMINATED, SPRINT PCS MAY PURCHASE OUR OPERATING ASSETS AT A DISCOUNT TO MARKET
VALUE WITHOUT FURTHER STOCKHOLDER APPROVAL
Since we do not own any licenses to operate a wireless network, our ability
to offer Sprint PCS products and services and our PCS network's operation are
dependent on our agreements with Sprint PCS not being terminated. Our agreements
with Sprint PCS can be terminated for breach of any material terms. We are also
dependent on Sprint PCS' ability to perform its obligations under our
agreements. The termination of our management agreement with Sprint PCS, or the
failure of Sprint PCS to perform its obligations under our management agreement,
would severely restrict our ability to conduct our business. If our management
agreement is terminated, we may be required to sell our operating assets to
Sprint PCS. This sale may take place without further stockholder approval and
for a price equal to 72% of our entire business value. The provisions of our
management agreement that allow Sprint PCS to purchase our operating assets at a
discount could adversely affect the value of our common stock, may limit our
ability to sell our business and may reduce the value a buyer would be willing
to pay for our business. See "The Sprint PCS Agreements--The Management
Agreement--Rights on Termination."
WE MAY NOT RECEIVE AS MUCH SPRINT PCS TRAVEL REVENUE AS WE ANTICIPATE BECAUSE
SPRINT PCS CAN CHANGE THE RATE WE RECEIVE OR FEWER PEOPLE MAY TRAVEL ON OUR
NETWORK
We are paid a fee from Sprint PCS for every minute that a Sprint PCS
subscriber based outside of our markets uses the Sprint PCS network in our
markets, which we refer to as travel revenue. Similarly, we pay a fee to Sprint
PCS for every minute that a Sprint PCS subscriber based in our markets uses the
Sprint PCS network outside our markets, which we refer to as travel fees. We
anticipate that travel revenue will represent approximately 10% of our projected
revenue in 2000, and will continue to represent a substantial portion of our
revenue in the future. Under our agreements with Sprint PCS, in October 2000,
Sprint PCS can change the current fee
8
<PAGE>
we receive or pay for each Sprint PCS travel minute. The unilateral change by
Sprint PCS in the travel revenue we are paid could substantially decrease our
revenues and net income. In addition, Sprint PCS customers from our markets may
spend more time in other Sprint PCS coverage areas than we anticipate and Sprint
PCS customers from outside our markets may spend less time in our markets or may
use our services less than we anticipate, which will reduce our travel revenue.
As a result, we may receive less Sprint PCS travel revenue than we anticipate or
we may have to pay more Sprint PCS travel fees than the travel revenue we
collect. For more information, see "Business--Travel and Roaming."
THE INABILITY TO USE SPRINT PCS' SUPPORT SERVICES COULD DISRUPT OUR BUSINESS
AND INCREASE OUR OPERATING COSTS
We rely on Sprint PCS' internal support systems, including customer care,
customer activation, billing and other administrative support. Our operations
could be disrupted if Sprint PCS is unable to maintain and expand these office
services, or to efficiently outsource those services and systems through third
party vendors.
The rapid expansion of Sprint PCS' business is expected to require that
Sprint PCS continue to enhance its internal support systems. Sprint PCS' ability
to provide adequate capacity for billing and other systems is dependent on a
number of factors, including forecasts of customer growth, customer usage
pattern and software releases from third-party vendors. We cannot assure that
Sprint PCS will be able to successfully add system capacity or that its internal
support systems will be adequate. It is likely that problems with Sprint PCS'
internal support systems could cause:
- delays or problems in our own operations or service;
- delays or difficulty in gaining access to customer and financial
information;
- a loss of Sprint PCS customers; and
- an increase in the costs of those services.
Our services agreement with Sprint PCS provides that, upon nine months'
prior written notice, Sprint PCS may terminate any service that we purchase from
Sprint PCS. If Sprint PCS terminates a service for which we have not developed a
cost-effective alternative or increases the amount it charges us for these
services, our operating costs may increase beyond our expectations and our
operations may be interrupted or restricted.
IF SPRINT PCS DOES NOT COMPLETE THE CONSTRUCTION OF ITS NATIONWIDE PCS
NETWORK, WE MAY NOT BE ABLE TO ATTRACT AND RETAIN CUSTOMERS
Sprint PCS currently intends to cover a significant portion of the
population of the United States, Puerto Rico and the U.S. Virgin Islands by
creating a nationwide PCS network through its own construction efforts and those
of its affiliates. Sprint PCS is still constructing its nationwide network and
does not offer PCS services, either on its own network or through its roaming
agreements, in every city in the United States. Sprint PCS has entered into, and
anticipates entering into, management agreements similar to ours with companies
in other markets under its nationwide PCS build-out strategy. Our results of
operations are dependent on Sprint PCS' national network and, to a lesser
extent, on the networks of its other affiliates. Sprint PCS'
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<PAGE>
network may not provide nationwide coverage to the same extent as its
competitors which could adversely affect our ability to attract and retain
customers.
OUR ROAMING ARRANGEMENTS MAY NOT BE COMPETITIVE WITH OTHER WIRELESS SERVICE
PROVIDERS, WHICH MAY RESTRICT OUR ABILITY TO ATTRACT AND RETAIN CUSTOMERS
We rely on roaming arrangements with other wireless service providers for
coverage in some areas. Some risks related to these arrangements are as follows:
- the quality of the service provided by another provider during a roaming
call may not approximate the quality of the service provided by the Sprint
PCS network;
- the price of a roaming call may not be competitive with prices of other
wireless companies for roaming calls;
- customers may have to use a more expensive dual-band/dual-mode handset
with diminished standby and talk time capacities;
- customers must end a call in progress and initiate a new call when leaving
the Sprint PCS network and entering another wireless network; and
- Sprint PCS customers may not be able to use Sprint PCS' advanced features,
such as voicemail notification, while roaming.
If Sprint PCS customers are not able to roam instantaneously or efficiently onto
other wireless networks, we may lose current Sprint PCS subscribers and our
Sprint PCS services will be less attractive to new customers.
SPRINT PCS MAY MAKE BUSINESS DECISIONS THAT WOULD NOT BE IN OUR BEST INTEREST
Under our management agreement, Sprint PCS has a substantial amount of
control over the conduct of our business. Conflicts between us and Sprint PCS
may arise, and because Sprint PCS owes us no duties except as set forth in the
management agreement, these conflicts may not be resolved in our favor.
Accordingly, Sprint PCS may make decisions that adversely affect our business,
such as the following:
- Sprint PCS prices its national plans based on its own objectives and could
set price levels that may not be economically sufficient for our business;
- Sprint PCS could change the per minute rate for Sprint PCS travel revenue
it must pay to us, the per minute charge we must pay to Sprint PCS for
travel fees, and the costs for Sprint PCS to perform support services;
- we must obtain Sprint PCS' consent to sell non-Sprint PCS approved
equipment, which consent could be withheld;
- Sprint PCS may alter its network and technical requirements, which could
result in increased equipment and build-out costs;
- Sprint PCS may request that we build-out additional areas within our
markets, which if undertaken, could result in less return on investment or
a reduction of our license population if we decline to build the requested
area;
10
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- If Sprint PCS terminates our management agreement because we fail to meet
the build-out of our network or the technical standards as required under
our management agreement, Sprint PCS may force us to sell our operating
assets at a discount to market value without further stockholder approval,
which could adversely affect the value of our common stock, may limit our
ability to sell our business and may reduce the value a buyer would be
willing to pay for our business; and
- Sprint or Sprint PCS could make other business decisions which could
adversely affect the Sprint and Sprint PCS brand names, products or
services.
PROVISIONS OF OUR MANAGEMENT AGREEMENT WITH SPRINT PCS MAY DIMINISH OUR VALUE
AND RESTRICT THE SALE OF OUR BUSINESS
Under certain circumstances and without further stockholder approval, Sprint
PCS may purchase our operating assets or capital stock for a percentage of our
"entire business value," which includes the value of the spectrum licenses,
business operations and other assets more fully described in "The Sprint PCS
Agreements--The Management Agreement--Rights on Termination." In addition,
Sprint PCS must approve any change of control of our ownership and consent to
any assignment of our management agreement with Sprint PCS. Sprint PCS has a
right of first refusal if we decide to sell our operating assets to a third
party. We are also subject to a number of restrictions on the transfer of our
business including a prohibition on the sale of us or our operating assets to
competitors of Sprint or Sprint PCS. These restrictions and other restrictions
in our management agreement with Sprint PCS could adversely affect the value of
our common stock, may limit our ability to sell the business, may reduce the
value a buyer would be willing to pay for our business and may operate to reduce
our entire business value.
IF SPRINT PCS DOES NOT MAINTAIN CONTROL OVER ITS LICENSED SPECTRUM, OUR
MANAGEMENT AGREEMENT WITH SPRINT PCS MAY BE TERMINATED
Sprint PCS, not us, owns the licenses necessary to provide wireless services
in our markets. The Federal Communications Commission requires that licensees
like Sprint PCS maintain control of their licensed systems and not delegate
control to third party operators or managers like us. If the Federal
Communications Commission were to determine that our management agreement with
Sprint PCS needs to be modified to increase the level of licensee control, we
have agreed with Sprint PCS to use our best efforts to modify the agreement to
comply with applicable law. If we cannot agree with Sprint PCS to modify the
agreement, it may be terminated. If the agreement is terminated, we would no
longer be a part of the Sprint PCS network and it would be extremely difficult
to conduct our business.
THE FEDERAL COMMUNICATIONS COMMISSION MAY NOT RENEW THE SPRINT PCS LICENSES,
WHICH WOULD PREVENT US FROM PROVIDING WIRELESS SERVICES
We do not own any licenses to operate wireless networks. We are dependent on
Sprint PCS' licenses, which are subject to renewal and revocation. Sprint PCS'
licenses in our markets will expire in 2004 through 2007, but may be renewed for
additional 10-year terms. The Federal Communications Commission has adopted
specific standards that apply to wireless personal communications services
license renewals which, in the event of a comparative proceeding with competing
applications, includes the award of a renewal expectancy to Sprint PCS upon its
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showing of "substantial service" during the past license term. Any failure by
Sprint PCS or us to comply with these standards could cause nonrenewal of the
Sprint PCS licenses for our markets. Additionally, if Sprint PCS does not
demonstrate to the Federal Communications Commission that Sprint PCS has met the
5-year and 10-year construction requirements for each of its wireless personal
communications services licenses, it can lose the affected licenses and be
ineligible to regain them.
WE RELY ON THE USE OF THE SPRINT PCS BRAND NAME AND LOGO TO MARKET OUR
SERVICES, AND A LOSS OF USE OF THIS BRAND AND LOGO OR A DECREASE IN THE MARKET
VALUE OF THIS BRAND AND LOGO WOULD HINDER OUR ABILITY TO MARKET OUR PRODUCTS
The Sprint PCS brand and logo is highly recognizable. If we lose our rights
to use the Sprint PCS brand and logo under our trademark and service mark
license agreements, we would lose the advantages associated with marketing
efforts conducted by Sprint PCS. If we lose the rights to use this brand and
logo, customers may not recognize our brand readily and we may have to spend
significantly more money on advertising to create brand recognition. See "The
Sprint PCS Agreements--The Trademark and Service Mark License Agreements."
OUR RELATIONSHIP WITH SPRINT PCS OR ITS SUCCESSOR MAY BE ADVERSELY AFFECTED BY
THE PROPOSED MERGER OF SPRINT AND MCI WORLDCOM, WHICH COULD RESTRICT OUR ABILITY
TO OPERATE SUCCESSFULLY
Sprint and MCI WorldCom have announced that the boards of directors of both
companies have approved a definitive merger agreement whereby the two companies
would merge to form a new company called WorldCom. Although the companies have
approved the merger, the completion of the merger is still subject to various
conditions, including the approvals of the shareholders of both companies, the
Federal Communications Commission, the Justice Department, various state
governmental bodies and foreign antitrust authorities. If the merger is
completed, the results of the merger may alter the nature of our relationship
with Sprint PCS, which could restrict our ability to operate successfully. Also,
any negative impact on Sprint as a result of the merger could have a negative
impact on us as a Sprint PCS affiliate.
IF SPRINT PCS DOES NOT RENEW OUR MANAGEMENT AGREEMENT, OUR ABILITY TO CONDUCT
OUR BUSINESS WOULD BE SEVERELY RESTRICTED
Our management agreement with Sprint PCS is not perpetual. Sprint PCS can
choose not to renew the agreement at the expiration of the 20-year initial term
or any ten-year renewal term. Our agreement with Sprint PCS terminates in all
events in 50 years. If Sprint PCS decides not to renew the management agreement
or terminates it in accordance with its terms, we would no longer be a part of
the Sprint PCS network and it would severely restrict our ability to conduct our
business.
OTHER RISKS PARTICULAR TO US
WE MAY HAVE A CONTINGENT LIABILITY ARISING OUT OF A POSSIBLE VIOLATION OF
SECTION 5 OF THE SECURITIES ACT OF 1933 IN CONNECTION WITH THE EXISTENCE OF
HYPERLINKS ON OUR WEBSITE
On or about May 17, 2000, we established our website with three hyperlinks
to an independent unaffiliated website that included specific articles regarding
UbiquiTel and this offering. One of the hyperlinks accessed the prospectus
summary contained in the prospectus
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forming a part of our registration statement initially filed with the Commission
of March 10, 2000, while each of the other hyperlinks accessed a press release
regarding this offering. Our hyperlinks were operational for only nine days, and
were disabled on May 26, 2000. The information contained on one or more of the
hyperlinks may have constituted a prospectus that did not meet the requirements
of the Securities Act, in which case the existence of any of the hyperlinks may
have caused us to violate Section 5 of the Securities Act. If the existence of
any of these hyperlinks caused a violation of Section 5 of the Securities Act,
we believe that only purchasers in this offering who read the information
contained in the hyperlinks would have the right, for a period of one year from
the date of their purchase of the common stock, to bring an action for recission
or for damages resulting from their purchase of common stock. We cannot assure
you, however, that if such violation occurred this right would be limited to
those purchasers. We do not believe that the existence of any of these
hyperlinks caused a violation of Section 5, and if any such claim were asserted,
we would contest the matter vigorously. Accordingly, we do not believe that our
exposure, if any, resulting from the existence of any of these hyperlinks would
be material to our results of operations or financial condition.
WE HAVE A LIMITED OPERATING HISTORY AND IF WE DO NOT SUCCESSFULLY MANAGE OUR
ANTICIPATED RAPID GROWTH, WE MAY NOT BE ABLE TO COMPLETE OUR ENTIRE PCS NETWORK
BY OUR TARGET DATE, IF AT ALL
As of the date of this prospectus, we have commenced limited operations. Our
performance as a PCS provider will depend on our ability to manage successfully
the network build-out process, implement operational and administrative systems,
expand our base of employees, and train and manage our employees, including
engineering, marketing and sales personnel. We will require expenditures of
significant funds for the development, construction, testing and deployment of
our PCS network before expanding commercial PCS operations. These activities are
expected to place significant demands on our managerial, operational and
financial resources.
The management of our anticipated growth will require, among other things:
- continued development of our operational and administrative systems;
- stringent control of costs of network build-out;
- integration of our network infrastructure with the rest of the Sprint PCS
network;
- increased marketing activities;
- the ability to attract and retain qualified management, technical and
sales personnel; and
- the training of new personnel.
Failure to successfully manage our expected rapid growth and development
could impair our ability to achieve profitability and expand the coverage in our
markets.
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WE MAY NEED MORE CAPITAL THAN WE CURRENTLY PROJECT TO BUILD-OUT OUR PORTION OF
THE SPRINT PCS NETWORK; AND IF WE FAIL TO OBTAIN REQUIRED ADDITIONAL CAPITAL, WE
MAY NOT HAVE SUFFICIENT FUNDS TO COMPLETE OUR BUILD-OUT IN ACCORDANCE WITH THE
TERMS OF OUR MANAGEMENT AGREEMENT WITH SPRINT PCS AND SPRINT PCS MAY TERMINATE
OUR MANAGEMENT AGREEMENT AND PURCHASE OUR OPERATING ASSETS AT A DISCOUNT TO
MARKET VALUE WITHOUT FURTHER APPROVAL OF OUR STOCKHOLDERS
The build-out of our portion of the Sprint PCS network will require
substantial capital. Additional funds could be required for a variety of
reasons, including unanticipated expenses or operating losses. Additional funds
may not be available. Even if those funds are available, we may not be able to
obtain them on a timely basis, or on terms acceptable to us or within
limitations permitted by the covenants under our senior credit facility or the
covenants under the indenture that governs our senior subordinated discount
notes. Failure to obtain additional funds, should the need for them develop,
could result in the delay or abandonment of our development and expansion plans.
If we do not have sufficient funds to complete our build-out, we may be in
breach of our management agreement with Sprint PCS and under our debt
agreements. If Sprint PCS terminates our management agreement as result of this
breach, we may be required to sell our operating assets to Sprint PCS at a
discount to market value without further stockholder approval. The provisions in
our management agreement that allow Sprint PCS to purchase our operating assets
at a discount could adversely affect the value of our common stock, may limit
our ability to sell our business and may reduce the value a buyer would be
willing to pay for our business.
BECAUSE WE DEPEND HEAVILY ON OUTSOURCING, THE INABILITY OF THIRD PARTIES TO
FULFILL THEIR CONTRACTUAL OBLIGATIONS TO US MAY DISRUPT OUR SERVICES OR THE
BUILD-OUT OF OUR PORTION OF THE SPRINT PCS NETWORK
Because we outsource portions of our business, we depend heavily on
third-party vendors, suppliers, consultants, contractors and local telephone
companies. We have retained those persons to:
- design and engineer our systems;
- construct radio communications sites, network control centers and towers;
- lease radio communications sites;
- install transmission lines; and
- deploy our wireless personal communications services network systems.
We lease a portion of the radio communications sites for our wireless
systems through master lease agreements with communication site management
companies such as SpectraSite. SpectraSite, in turn, has separate leasing
arrangements with each of the owners of the sites. If SpectraSite or other
similar firms were to become insolvent or were to breach those arrangements, we
may lose access to those radio communications sites and experience extended
service interruption in the areas serviced by those sites. We have retained LCC
International and other consultants and contractors to assist in the design and
engineering of our systems, construct radio communications sites, network
control centers and towers, lease radio communications sites and deploy our PCS
network systems and we will be significantly dependent upon them in order to
fulfill our build-out obligations. The failure by any of our vendors, suppliers,
consultants, contractors or local telephone companies to fulfill their
contractual obligations to us could
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materially delay construction and adversely affect the operations of our portion
of the Sprint PCS network.
WE WILL HAVE SUBSTANTIAL DEBT WHICH WE MAY NOT BE ABLE TO SERVICE AND WHICH
MAY RESULT IN OUR LENDERS CONTROLLING OUR ASSETS IN AN EVENT OF DEFAULT
In April 2000, we issued 300,000 units consisting of senior subordinated
discount notes due 2010 and warrants to purchase 3,579,000 shares of our common
stock, which yielded gross proceeds to us of $152.3 million. In March 2000, we
signed a $250.0 million senior credit facility, and made borrowings of
$75.0 million under the credit facility in April 2000. As a result, we have a
substantial amount of long-term debt. See "Description of Certain Indebtedness"
and "Use of Proceeds."
The substantial amount of our debt will have a number of important
consequences for our operations, including the following:
- we will have to dedicate a substantial portion of any cash flow from
operations to the payment of interest on, and principal of, our debt,
which will reduce funds available for other purposes;
- we may not have sufficient funds to pay interest on, and principal of, our
debt;
- we may not be able to obtain additional financing for currently
unanticipated capital requirements, capital expenditures, working capital
requirements and other corporate purposes;
- some of our debt, including borrowings under our senior credit facility,
will be at variable rates of interest, which could result in higher
interest expense in the event of increases in market interest rates;
- due to the liens on substantially all of our assets and the assets of our
subsidiaries that secure our debt, lenders may control our assets or
subsidiaries upon a default; and
- we may be more highly leveraged than some of our competitors, which may
put us at a competitive disadvantage.
Our ability to make payments on our debt depends upon our future operating
performance which is subject to general economic and competitive conditions and
to financial, business and other factors, many of which we cannot control. If
the cash flow from our operating activities is insufficient, we may take
actions, such as delaying or reducing capital expenditures, attempting to
restructure or refinance our debt, selling assets or operations or seeking
additional equity capital. Any or all of these actions may not be sufficient to
allow us to service our debt obligations. Further, we may be unable to take any
of these actions on satisfactory terms, in a timely manner or at all. The senior
credit facility and the indenture that governs the senior subordinated discount
notes limit our ability to take several of these actions. Under our current
business plan, we expect to incur substantial debt before achieving break-even
cash flow. Our failure to generate sufficient funds to pay our debts or to
successfully undertake any of these actions could, among other things,
materially adversely affect the market value of our common stock.
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WE MAY NOT RECEIVE THE FUNDS UNDER OUR SENIOR CREDIT FACILITY, WHICH COULD
PREVENT US FROM MEETING OUR NETWORK BUILD-OUT OBLIGATIONS UNDER OUR AGREEMENTS
WITH SPRINT PCS
We signed our $250.0 million senior credit facility in March 2000.
Concurrently with our sale of senior subordinated discount notes, we borrowed
$75.0 million of term loans under the credit facility, which were funded into an
escrow account. The escrow account will remain the property of our lenders and
will not be released to us if an event of default has occurred under the credit
agreement. Additionally, the escrow funds will not be released until specified
conditions have been satisfied. These conditions include, among others, evidence
that we have used all of the proceeds from our sale of our senior subordinated
discount notes and from this offering to pay fees and expenses in connection
with these offerings, to fund the build-out of our network or for other general
corporate and working capital purposes. Additional borrowings under our senior
credit facility must be placed into escrow until the conditions to release our
initial borrowing of $75.0 million have been satisfied. Accordingly, there can
be no assurance that we will receive the proceeds from the senior credit
facility. If we fail to receive these funds, we may not be able to meet our
network build-out obligations under our agreements with Sprint PCS.
IF WE DEFAULT UNDER OUR SENIOR SECURED CREDIT FACILITY, OUR LENDER MAY DECLARE
OUR DEBT IMMEDIATELY DUE AND PAYABLE AND SPRINT PCS MAY FORCE US TO SELL OUR
ASSETS WITHOUT STOCKHOLDER APPROVAL
Our $250.0 million senior secured credit facility requires that we comply
with specified financial ratios and other performance covenants. If we fail to
comply with these covenants or we default on our obligations under our senior
credit facility, our lender may accelerate the maturity of our debt. If our
lender accelerates our debt, Sprint PCS has the option to purchase our operating
assets at a discount to market value and assume our obligations under the senior
credit facility, without further stockholder approval. If Sprint PCS does not
exercise this option, our lender may sell our assets to third parties without
approval of our stockholders. If Sprint PCS provides notice to our lender that
we are in breach of our management agreement with Sprint PCS and, as a result,
our obligations under the credit agreement are accelerated and Sprint PCS does
not elect to operate our business, our lender may designate a third party to
operate our business without the approval of our stockholders.
OUR INDEBTEDNESS PLACES RESTRICTIONS ON US WHICH MAY LIMIT OUR OPERATING
FLEXIBILITY AND OUR ABILITY TO PAY DIVIDENDS
The indenture that governs our senior subordinated discount notes and the
credit agreement that governs our senior credit facility impose material
operating and financial restrictions on us. These restrictions, subject to
ordinary course of business exceptions, may limit our ability to engage in some
transactions, including the following:
- designated types of mergers or consolidations;
- paying dividends or other distributions to our stockholders;
- making investments;
- selling assets;
- repurchasing our common stock;
- changing lines of business;
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- borrowing additional money; and
- entering into transactions with affiliates.
These restrictions could limit our ability to obtain debt financing,
repurchase stock, refinance or pay principal or interest on our outstanding
debt, consummate acquisitions for cash or debt or react to changes in our
operating environment.
WE MAY NOT BE ABLE TO RESPOND EFFECTIVELY TO THE SIGNIFICANT COMPETITION IN
THE WIRELESS COMMUNICATIONS SERVICES INDUSTRY OR KEEP PACE WITH OUR COMPETITORS
IN THE INTRODUCTION OF NEW PRODUCTS, SERVICES AND EQUIPMENT, WHICH COULD IMPAIR
OUR ABILITY TO ATTRACT NEW CUSTOMERS
Our dependence on Sprint PCS to develop competitive products and services
and the requirement that we obtain Sprint PCS' consent to sell non-Sprint PCS
approved equipment may limit our ability to keep pace with our competitors in
the introduction of new products, services and equipment. Additionally, we
expect that existing cellular providers will upgrade their systems and provide
expanded, digital services to compete with the Sprint PCS products and services
that we intend to offer. These wireless providers require their customers to
enter into long-term contracts, which may make it more difficult for us to
attract customers away from them. Sprint PCS generally does not require its
customers to enter into long-term contracts, which may make it easier for other
wireless providers to attract customers away from us.
WE MAY NOT BE ABLE TO COMPETE WITH LARGER, MORE ESTABLISHED WIRELESS PROVIDERS
WHO HAVE RESOURCES TO COMPETITIVELY PRICE THEIR PRODUCTS AND SERVICES, WHICH
COULD RESULT IN A REDUCTION OF OUR SUBSCRIBERS
We will compete in some of our markets with more than three wireless
providers, some of which have an infrastructure in place and have been
operational for a number of years. Some of our competitors:
(1) have substantially greater financial, technological, marketing and sales
and distribution resources than us;
(2) have more extensive coverage in specific areas of our markets and have
broader regional coverage than us; and
(3) may market other services, such as traditional telephone service, cable
television access and access to the Internet, with their wireless
communications services.
We may be unable to compete successfully with these larger competitors who
have substantially greater resources or who offer more services than we do to a
larger subscriber base, which could result in a reduction in new subscribers.
WE MAY NOT BE ABLE TO RESPOND TO THE RECENT TREND IN THE CONSOLIDATION OF THE
WIRELESS COMMUNICATIONS INDUSTRY, OR COMPETE WITH POTENTIAL ACQUIRORS FOR
ACQUISITIONS, WHICH COULD RESULT IN A REDUCTION OF OUR SUBSCRIBERS, DECLINE IN
PRICES FOR OUR PRODUCTS AND SERVICES AND ADDITIONAL DILUTION TO OUR STOCKHOLDERS
IF WE ISSUE OUR COMMON STOCK IN ACQUISITIONS
There has been a recent trend in the wireless communications industry
towards consolidation of wireless service providers through joint ventures,
mergers and acquisitions. We expect this consolidation to lead to larger
competitors over time. Several large competitors already exist, such as AT&T
Wireless with over 12 million subscribers and the recent partnership of Bell
Atlantic-
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GTE and Vodafone AirTouch with over 19 million subscribers. We may not be able
to respond to pricing pressures that may result from a consolidation in our
industry, which could result in a reduction of new subscribers and cause market
prices for our products and services to decline in the future. Also, if we
expand our operations through acquisitions, we will compete with other potential
acquirors, some of which may have greater financial or operational resources
than us. If we issue additional shares of our common stock in connection with
any acquisition, this may result in dilution to our stockholders.
WE MAY HAVE DIFFICULTY IN OBTAINING HANDSETS AND EQUIPMENT, WHICH ARE IN SHORT
SUPPLY, WHICH COULD CAUSE DELAYS AND INCREASED COSTS IN THE BUILD-OUT OF OUR
NETWORK
We currently purchase all handsets and equipment through Sprint PCS. The
demand for the equipment we require to construct our portion of the Sprint PCS
network is considerable, and manufacturers of this equipment have substantial
order backlogs. In addition, the demand for specific types of handsets is strong
and the manufacturers of those handsets may have to distribute their limited
supply or products among the manufacturers' numerous customers. If Sprint PCS
modifies its handset logistics and delivery plan or if we are not able to
continue to rely on Sprint PCS' relationships with suppliers and vendors, some
of which provide us with vendor discounts on equipment, we could have difficulty
obtaining specific types of handsets and equipment in a timely manner and our
equipment costs could increase. As a result, we could suffer delays in the
build-out of our portion of the Sprint PCS network, disruptions in service and a
reduction in subscribers.
THE TECHNOLOGY WE USE HAS LIMITATIONS AND COULD BECOME OBSOLETE, WHICH WOULD
REQUIRE US TO IMPLEMENT NEW TECHNOLOGY AT SUBSTANTIALLY INCREASED COSTS AND
LIMIT OUR ABILITY TO COMPETE EFFECTIVELY
We intend to employ digital wireless communications technology selected by
Sprint PCS for its nationwide network. Code division multiple access, known as
CDMA, technology is a relatively new technology. CDMA may not provide the
advantages expected by Sprint PCS. If another technology becomes the preferred
industry standard, we may be at a competitive disadvantage and competitive
pressures may require Sprint PCS to change its digital technology which, in turn
may require us to make changes at substantially increased costs. We may not be
able to respond to such pressures and implement new technology on a timely
basis, or at an acceptable cost. We also expect to face competition from other
existing communications technologies such as specialized mobile radio, known as
SMR, and enhanced specialized mobile radio, known as ESMR, and domestic and
global mobile satellite service. SMR and ESMR systems can provide services that
may be competitive with those offered by PCS and are often less expensive to
build than PCS systems. In addition, we expect that in the future providers of
wireless communications services will compete more directly with providers of
traditional telephone services, energy companies, utility companies and cable
operators who expand their services to offer communications services. Potential
users of PCS systems may find their communications needs satisfied by other
current and developing technologies. One or two-way paging or beeper services
that feature voice messaging and data display as well as tone-only service may
be adequate for potential subscribers who do not need to speak to the caller.
See "Business--Technology."
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OUR SERVICES MAY NOT BE BROADLY USED AND ACCEPTED BY CONSUMERS, WHICH COULD
REDUCE THE AMOUNT OF OUR NEW SUBSCRIBER REVENUE
PCS systems have a limited operating history in the United States. The
extent of potential demand for PCS in our markets cannot be estimated with any
degree of certainty. Our inability to establish and successfully market PCS
services could have a material adverse effect on our financial condition and
results of operations.
WE MAY NOT ACHIEVE OR SUSTAIN OPERATING PROFITABILITY OR POSITIVE CASH FLOW
FROM OPERATING ACTIVITIES
We expect to incur significant operating losses and to generate significant
negative cash flow from operating activities until at least 2003 while we
develop and construct our PCS network and build our customer base. Our operating
profitability will depend upon many factors, including, among others, our
ability to market our services successfully, achieve our projected market
penetration and manage customer turnover rates effectively. If we do not achieve
and maintain operating profitability and positive cash flow from operating
activities on a timely basis, we may not be able to meet our debt service
requirements.
UNAUTHORIZED USE OF OUR PCS NETWORK COULD DISRUPT OUR BUSINESS
We will likely incur costs associated with the unauthorized use of our PCS
network, including administrative and capital costs associated with detecting,
monitoring and reducing the incidence of fraud. Fraud impacts interconnection
costs, capacity costs, administrative costs, fraud prevention costs and payments
to other carriers for unbillable fraudulent roaming.
OUR CURRENT STOCKHOLDERS HAVE OTHER INVESTMENTS IN TELECOMMUNICATIONS
BUSINESSES, WHICH MAY RESULT IN A CONFLICT OF INTEREST WITH US
Some of our principal stockholders as well as some of our directors
affiliated with these stockholders have investments in, or serve on boards of,
other telecommunications businesses.
As a result, conflicts of interest may arise from these investments and
other directorships. Additionally, these stockholders may invest in other
telecommunications businesses that compete with us. Our interests may conflict
with the interests of these companies, and any conflicts may not be resolved in
our favor.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS INCLUDE PROVISIONS THAT MAY
DISCOURAGE A CHANGE OF CONTROL TRANSACTION AND WHICH MAY AFFECT THE RIGHTS OF
HOLDERS OF OUR COMMON STOCK
Some provisions of our certificate of incorporation and bylaws and the
provisions of Delaware law could have the effect of delaying, deferring or
preventing an acquisition of us. For example, we have a staggered board of
directors, the members of which may only be removed for cause, authorized but
unissued shares of preferred stock which could be used to fend off a takeover
attempt, our stockholders may not take actions by written consent and our
stockholders are limited in their ability to make proposals at stockholder
meetings.
OUR PLAN OF COVERAGE FOR OUR MARKETS MAY BE INADEQUATE TO PROFITABLY OPERATE
OUR BUSINESS
Our projected build-out plan for our markets does not cover all areas of our
markets. As a result, our plan may not adequately serve the needs of the
potential customers in our markets or
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attract enough subscribers to operate our business successfully. To correct this
potential problem, we may have to cover a greater percentage of our markets than
we anticipate, which we may be unable to do profitably.
RISKS PARTICULAR TO OUR INDUSTRY
WE MAY EXPERIENCE A HIGH RATE OF CUSTOMER TURNOVER WHICH WOULD INCREASE OUR
COSTS OF OPERATIONS AND REDUCE OUR REVENUE
Our strategy to reduce customer turnover may not be successful. The rate of
customer turnover may be the result of several factors, including network
coverage, reliability issues such as blocked calls, dropped calls, handset
problems, non-use of phones, change of employment, the non-use of customer
contracts, affordability, customer care concerns and other competitive factors.
Price competition and other competitive factors could also cause increased
customer turnover. A high rate of customer turnover could adversely affect our
competitive position, results of operations and our costs of, or losses incurred
in, obtaining new subscribers, especially because we subsidize some of the costs
of initial purchases of handsets by customers.
USE OF HAND-HELD PHONES MAY POSE HEALTH RISKS, WHICH COULD RESULT IN A
REDUCTION IN SUBSCRIBERS AND INCREASED EXPOSURE TO LITIGATION
Media reports have suggested that certain radio frequency emissions from
wireless handsets may be linked to various health concerns, including cancer,
and may interfere with various electronic medical devices, including hearing
aids and pacemakers. The actual or perceived risk of radio frequency emissions
from portable telephones could adversely affect us through a reduced subscriber
growth rate, a reduction in subscribers, reduced network usage per subscriber,
reduced financing available to the mobile communications industry and increased
exposure to potential litigation.
REGULATION BY GOVERNMENT AGENCIES AND TAXING AUTHORITIES MAY INCREASE OUR
COSTS OF PROVIDING SERVICE OR REQUIRE US TO CHANGE OUR SERVICES
The licensing, construction, use, operation, sale and interconnection
arrangements of wireless telecommunication systems are regulated to varying
degrees by the Federal Communications Commission, the Federal Trade Commission,
the Federal Aviation Administration, the Environmental Protection Agency, the
Occupational Safety and Health Administration and, depending on the
jurisdiction, state and local regulatory agencies and legislative bodies.
Adverse decisions regarding these regulatory requirements could negatively
impact Sprint PCS' operations and our costs of doing business. For example,
changes in tax laws or the interpretation of existing tax laws by state and
local authorities could subject us to increased income, sales, gross receipts or
other tax costs or require us to alter the structure of our relationship with
Sprint PCS.
OUR BUSINESS IS SEASONAL AND WORSE THAN EXPECTED FOURTH QUARTER RESULTS MAY
CAUSE OUR STOCK PRICE TO DROP AND SIGNIFICANTLY REDUCE OUR OVERALL RESULTS OF
OPERATIONS
The wireless industry is heavily dependent on fourth quarter results. Among
other things, the industry relies on significantly higher customer additions and
handset sales in the fourth quarter as compared to the other three fiscal
quarters. The price of our common stock may drop and our
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overall results of operations could be significantly reduced if we have a worse
than expected fourth quarter for any reason, including the following:
- our inability to match or beat pricing plans offered by competitors;
- the failure to adequately promote Sprint PCS' products, services and
pricing plans;
- our inability to obtain an adequate supply or selection of handsets;
- a downturn in the economy of some or all of our markets; or
- a poor holiday shopping season.
There is also uncertainty as to the extent of customer demand as well as the
extent to which airtime and monthly recurring charges may continue to decline.
As a result, our future prospects and those of the industry, and the success of
PCS and other competitive services, remain uncertain.
RISKS RELATING TO THE OFFERING
OUR EXISTING STOCKHOLDERS, DIRECTORS AND OFFICERS MAY BE ABLE TO CONTROL THE
OUTCOME OF SIGNIFICANT MATTERS PRESENTED TO STOCKHOLDERS FOLLOWING THE
COMPLETION OF THIS OFFERING
Upon completion of this offering of common stock, our existing stockholders,
directors and officers will beneficially own approximately 74.9% of our
outstanding common stock on a fully diluted basis, or approximately 73.0% if the
underwriters' over-allotment option is exercised in full, each depending on how
many shares our existing stockholders purchase in this offering. Consequently,
those persons, if they act as a group, will be able to control the outcome of
matters submitted for stockholder action, including the election of members to
our board of directors and the approval of significant change in control
transactions. This may have the effect of delaying or preventing a change in
control. For more information on this subject, please refer to "Management" and
"Principal Stockholders."
POSSIBLE SALES OF OUR COMMON STOCK COULD CAUSE THE MARKET PRICE OF OUR COMMON
STOCK TO DECREASE
Many of our current stockholders hold large portions of our common stock.
The occurrence of sales of a large number of shares of our common stock, or the
perception that these sales could occur, could cause a drop in our stock price
and could impair our ability to obtain capital through any future offerings of
equity securities.
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FORWARD-LOOKING STATEMENTS
This prospectus contains statements about future events and expectations,
which are "forward-looking statements." Any statement in this prospectus that is
not a statement of historical fact may be deemed to be a forward-looking
statement. These statements include:
- estimates of current and future population for our markets;
- forecasts of growth in the number of consumers using PCS services;
- statements regarding our plans for and costs of the build-out of our PCS
network;
- statements regarding our anticipated revenues, expense levels, liquidity
and capital resources and projection of when we will launch commercial PCS
service and achieve break-even operating cash flow; and
- other statements, including statements containing words such as
"anticipate," "believe," "plan," "estimate," "expect," "seek," "intend"
and other similar words that signify forward-looking statements.
These forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. For a
discussion of some of these factors, see "Risk Factors" beginning on page 7.
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USE OF PROCEEDS
The net proceeds to be received from the sale of the common stock we are
offering, after deducting underwriting discounts and commissions and estimated
offering expenses, are expected to be approximately $92.2 million, or
approximately $106.2 million if the underwriter's over-allotment option is
exercised in full. We intend to use the net proceeds from this offering, our
sale of preferred stock and senior subordinated discount notes and borrowings
under our senior credit facility, for the period from December 31, 1999 through
December 31, 2003, as presented in the following table:
<TABLE>
<CAPTION>
AMOUNT
(IN MILLIONS)
<S> <C>
SOURCES:
Gross proceeds from this offering......................... $100.0
Gross proceeds from preferred stock(1).................... 25.0
Gross proceeds from senior subordinated discount
notes(2)................................................ 152.3
Senior credit facility(3)................................. 195.0
Existing cash balance..................................... 24.0
------
Total sources........................................... $496.3
======
USES:
Capital expenditures...................................... $239.0
Operating losses and working capital...................... 113.0
Acquisition of Spokane PCS assets......................... 35.0
Debt repayment and accrued interest(4).................... 8.4
Payments to preferred stockholders upon completion of this
offering(5)............................................. 1.0
Fees and expenses(6)...................................... 22.2
Cash on hand.............................................. 77.7
------
Total uses.............................................. $496.3
======
</TABLE>
------------------------
(1) On February 25, 2000, we issued in a private placement to DLJ Merchant
Banking Partners II, L.P., $25.0 million of our Series B preferred stock
which is convertible automatically into shares of our common stock upon the
completion of this offering.
(2) On April 11, 2000, we issued 300,000 units consisting of $300,000,000
principal amount of senior subordinated discount notes, generating gross
proceeds of approximately $152.3 million, and warrants to purchase 3,579,000
shares of our common stock.
(3) On March 31, 2000, we signed a senior credit agreement with Paribas to
provide a senior credit facility for up to $250.0 million of borrowings that
replaced our prior $25.0 million credit facility. Through December 31, 2003,
we expect to borrow $195.0 million of the $250.0 million available under the
senior credit facility. Borrowings under our senior credit facility will be
initially funded into an escrow account and not released to us until
specified conditions have been satisfied. See "Risk Factors--Other Risks
Particular to Us."
(4) Debt repayment is composed of repayment of senior subordinated debt of
$8.0 million, an $80,000 prepayment premium and approximately $300,000 of
accrued interest. The senior
23
<PAGE>
subordinated debt was incurred in December 1999 to fund working capital
requirements and the build-out of our Reno/Tahoe/Northern California market.
This debt consisted of a 10-year note with annual interest rate at 12%. We
granted warrants to purchase 4,978,150 shares of our common stock at $0.005
per share in connection with this debt. We allocated $2.2 million of the
$8.0 million proceeds from this debt to the warrants.
(5) The holders of our preferred stock are entitled to receive dividends at a
rate of 7% per year. We have not paid any dividends to our holders of
preferred stock as of the date of this prospectus. Our preferred stock will
convert into common stock on a one-for-one basis upon completion of this
offering and, upon conversion, we will be required to pay all accrued
dividends.
(6) Fees and expenses include estimated offering expenses and underwriting
discounts and commissions for this offering, expenses associated with the
preferred stock investment, fees and expenses associated with our senior
subordinated discount notes and origination and other fees and expenses
related to our senior credit facility.
The foregoing represents our best estimate of the allocation of the net
proceeds of this offering, the proceeds from the sale of preferred stock and
senior subordinated discount notes and borrowings under our senior credit
facility based upon our current markets and our current plans for these markets.
Actual expenditures may vary substantially from these estimates and we may find
it necessary or advisable to reallocate the net proceeds from these sources
within the above-described categories or to use portions thereof for other
purposes.
We intend to use the balance of the net proceeds of this offering for
general corporate purposes. Pending such uses, we expect to invest the net
proceeds from the sale of the common stock in short-term investment grade
securities which will earn interest.
DIVIDEND POLICY
We intend to retain our future earnings, if any, to fund the development and
growth of our business and, therefore, do not anticipate paying any cash
dividends in the foreseeable future. Our future decisions concerning the payment
of dividends on the common stock will depend upon our results of operations,
financial condition and capital expenditure plans, as well as such other factors
as the board of directors, in its sole discretion, may consider relevant. In
addition, our existing indebtedness restricts, and we anticipate our future
indebtedness may restrict, our ability to pay dividends.
24
<PAGE>
CAPITALIZATION
The following table shows the cash and cash equivalents position and our
total capitalization as of March 31, 2000, and as adjusted to reflect:
- our acquisition of the Spokane, Washington PCS network and related assets
from Sprint PCS;
- receipt of gross proceeds of $152.3 million from our senior subordinated
discount notes offering and the issuance of related warrants;
- receipt of gross proceeds of $100.0 million from this offering;
- initial borrowings of $75.0 million in term loans under our
$250.0 million senior credit facility;
- exercise of a warrant to purchase 4,978,150 shares of our common stock,
which was issued in connection with our senior subordinated note;
- repayment of our senior subordinated note;
- conversion of our preferred stock into common stock;
- cancellation of our non-voting common stock;
- payments to preferred stockholders upon closing of this offering; and
- issuance of shares of preferred stock to preferred stockholders
convertible into 77,002 shares of common stock and 136,758 shares of
common stock to our founding stockholders to maintain a specific
percentage stock ownership in connection with our senior subordinated
discount notes.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
----------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $ 33,729 $220,736
Cash, restricted............................................ -- 75,000(1)
-------- --------
Total cash and cash equivalents............................. $ 33,729 $295,736
======== ========
Long-term debt:
Senior credit facility.................................... $ -- $ 75,000(1)
Senior subordinated debt.................................. 5,812(2) --
Senior subordinated discount notes........................ -- 136,297(3)
-------- --------
Total long-term debt.................................... $ 5,812 $211,297
Redeemable warrants......................................... 2,758 570
Stockholders' equity:
Convertible preferred stock............................... 19 --
Non-voting common stock................................... 16 --
Voting common stock and additional paid-in capital........ 51,314 162,604(4)
Accumulated deficit....................................... (13,862) (17,437)
-------- --------
Total stockholders' equity.............................. 37,487 145,167
-------- --------
Total capitalization.................................... $ 46,057 $357,034
======== ========
</TABLE>
------------------------
(1) This amount was funded into an escrow account and will not be released to us
until specified conditions have been satisfied. See "Risk Factors--Other
Risks Particular to Us."
(2) Actual reflects the $5.8 million of the senior subordinated note allocated
to long-term debt.
(3) As adjusted reflects the $136.3 million of the $152.3 million of gross
proceeds from our senior subordinated discount notes allocated to long-term
debt.
(4) Of such amount, $16.3 million represents the value assigned to the warrants
and $0.6 million represents the value assigned to the shares of preferred
stock issued in connection with the senior subordinated discount notes.
25
<PAGE>
DILUTION
Our net tangible book value at March 31, 2000, was $(12.8) million or
$(1.84) per share of voting common stock. Net tangible book value per share
represents the amount of total tangible assets less total liabilities and
convertible preferred stock and redeemable warrants, divided by the number of
voting common stock shares outstanding. After giving effect to:
- the sale in this offering of 12,500,000 shares of common stock at an
initial public offering price of $8.00 per share and the receipt of net
proceeds therefrom;
- the receipt of approximately $145.1 million of net proceeds from our
senior subordinated discount notes;
- the effect of the conversion of shares of preferred stock into 38,237,694
shares of common stock upon the closing of this offering;
- the effect of the exercising of warrants issued in connection with the
senior subordinated notes into 3,579,000 shares of common stock; and
- the effect of the exercising of warrants issued in connection with the
senior subordinated notes into 86,183 shares of common stock; and
- the issuance of shares of preferred stock to preferred stockholders
convertible into 77,002 shares of common stock and 136,758 shares of
common stock to our founding stockholders to maintain a specific
percentage stock ownership,
our as adjusted net tangible book value as of March 31, 2000, would have been
approximately $106.9 million or $1.70 per share. This represents an immediate
dilution of $6.30 per share to new purchasers of common stock in this offering
and an immediate increase in net tangible book value to existing stockholders of
$3.54 per share. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $ 8.00
Net tangible book value per share as of March 31, 2000...... $(1.84)
Increase in net tangible book value per share attributable
to this offering.......................................... 3.54
------
As adjusted net tangible book value per share after this
offering.................................................. 1.70
------
Dilution per share to new purchasers of common stock........ $ 6.30
======
</TABLE>
The following table summarizes, on an as adjusted basis as of March 31,
2000, the number of shares of common stock purchased, the total consideration
paid for the common stock and the average price per share paid by our existing
stockholders and by the new purchasers of common stock in this offering with an
offering price of $8.00 per share, before the deduction of underwriting
discounts and commissions and estimated offering expenses of $7.9 million
payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 50,263,604 80.1% $ 44,216,048 30.7% $ 0.88
New purchasers of common stock...... 12,500,000 19.9 100,000,000 69.3 8.00
---------- ------ ------------ ------ ------
Total............................. 62,763,604 100.0 144,216,048 100.0
========== ====== ============ ======
</TABLE>
Except as indicated above, the foregoing tables assume no exercise of the
underwriter's over-allotment option and no exercise of outstanding stock options
or warrants to purchase an aggregate of 4,608,804 shares of common stock at
prices ranging from $0.005 to $0.50 per share. See "Management--2000 Equity
Incentive Plan" and "Description of Capital Stock--Warrants." The exercise of
these stock options and warrants would result in additional dilution to the new
purchasers of common stock in this offering.
26
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
We derived unaudited pro forma condensed consolidated financial and
operating data as of and for the three months ended March 31, 2000 and for the
year ended December 31, 1999 from our historical consolidated financial
statements and from other financial data included elsewhere in this prospectus.
Our financial results have been adjusted based on currently available
information and assumptions that we believe are reasonable to give effect to the
following transactions as if each transaction had occurred as of January 1, 1999
for the purpose of the pro forma statements of operations and as of March 31,
2000 for the purpose of the pro forma balance sheet:
- our acquisition of the Spokane, Washington PCS network and related assets
from Sprint PCS;
- receipt of gross proceeds of $152.3 million from our senior subordinated
discount notes and the issuance of related warrants;
- receipt of gross proceeds of $100.0 million from this offering;
- initial borrowings of $75.0 million in term loans under our
$250.0 million senior credit facility;
- exercise of a warrant to purchase 4,978,150 shares of our common stock,
which was issued in connection with our senior subordinated note;
- repayment of our senior subordinated note;
- conversion of our preferred stock into common stock;
- cancellation of our non-voting common stock;
- payments to preferred stockholders upon closing of this offering; and
- issuance of shares of preferred stock to preferred stockholders
convertible into 77,002 shares of common stock and 136,758 shares of our
common stock to our founding stockholders to maintain a specified
percentage stock ownership in connection with our senior subordinated
discount notes.
We provide the following unaudited pro forma condensed consolidated
financial statements and related notes for informational purposes only. The
accompanying data do not purport to represent what our results of operations
would have been if the pro forma transactions had been completed on the dates
indicated, nor do they purport to indicate our future financial position or
results of operations.
The data shown below should be read in conjunction with "Capitalization,"
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the consolidated financial statements
and accompanying notes included elsewhere in this prospectus.
27
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL EXCLUDING ADJUSTMENTS FOR AS
UBIQUITEL SPOKANE THIS OFFERING PRO FORMA THIS OFFERING ADJUSTED
---------- ---------- ------------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues................... $ 69 $ 1,574 $-- $ 1,643 $-- $ 1,643
Costs of services and
equipment.................... -- 779 -- 779 -- 779
-------- ------- ------- -------- ------ --------
Gross profit................... 69 795 -- 864 -- 864
Operating expenses:
Selling, general and
administrative excluding
non-cash compensation
charges.................... 907 1,214 -- 2,121 -- 2,121
Amortization of deferred
stock compensation expense
granted to employees for
general and administrative
matters.................... 119 -- -- 119 -- 119
Depreciation and
amortization............... -- 931 200 (1) 1,131 -- 1,131
-------- ------- ------- -------- ------ --------
Operating loss................. (957) (1,350) (200) (2,507) -- (2,507)
Interest income (expense),
net........................ 35 -- (8,698)(2) (8,663) -- (8,663)
-------- ------- ------- -------- ------ --------
Loss before extraordinary
item......................... (922) (1,350) (8,898) (11,170) -- (11,170)
Less: preferred stock
dividend..................... (9,231) -- -- (9,231) -- (9,231)
-------- ------- ------- -------- ------ --------
Loss available to common
stockholders................. (10,153) (1,350) (8,898) (20,401) -- (20,401)
Extraordinary item--write-off
of deferred financing costs
on early extinguishment of
debt......................... (1,723) -- -- (1,723) -- (1,723)
-------- ------- ------- -------- ------ --------
Net loss available to common
stockholders................. $(11,876) $(1,350) $(8,898) $(22,124) $-- $(22,124)
======== ======= ======= ======== ====== ========
Pro forma basic and diluted net
loss per common share........ $ (0.24) $ (0.44) $ (0.35)
======== ======== ========
Pro forma weighted average
common shares outstanding.... 50,264 50,264 62,764
======== ======== ========
</TABLE>
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
(DOLLARS IN THOUSANDS)
For the purpose of determining the pro forma effect of transactions
described above on our consolidated statement of operations for the three months
ended March 31, 2000, the following adjustments have been made:
(1) Represents the amortization of intangible asset recorded from the Spokane
acquisition consisting of goodwill and customer lists in the amount of
$15,975 over a period of 20 years which is the initial term of the Sprint
PCS management agreement.
(2) Represents additional interest expense based on the following:
<TABLE>
<S> <C>
Accrued interest and prepayment premium on senior
subordinated debt......................................... $ 80
Interest expense on $75,000 drawdown from senior credit
facility assuming an interest rate of 10%................. 1,875
Unused commitment fee of 1.375% on senior credit facility
assuming only minimum drawdowns........................... 601
Amortization of deferred financing fees from senior credit
facility over a period of 8.5 years....................... 209
Amortization of deferred financing costs relating to senior
subordinated discount notes over 10 years................. 203
Interest expense on senior subordinated discount notes...... 5,330
Amortization of the discount on senior subordinated discount
notes over 10 years....................................... 400
------
$8,698
======
</TABLE>
Excluded from the pro forma results of operations is a non-recurring charge of
$2,188 for the remaining discount on the senior subordinated note upon the early
extinguishment of the debt. This charge will be reflected as an extraordinary
item in the 2000 financial statements.
29
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL EXCLUDING ADJUSTMENTS FOR AS
UBIQUITEL SPOKANE THIS OFFERING PRO FORMA THIS OFFERING ADJUSTED
---------- ---------- ------------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues................. $ -- $ 5,625 $ -- $ 5,625 $-- $ 5,625
Costs of services and
equipment.................. -- 5,046 -- 5,046 -- 5,046
------- ------- -------- -------- -------- --------
Gross profit................. -- 579 -- 579 -- 579
Operating expenses:
Selling, general and
administrative excluding
non-cash compensation
charges.................. 554 5,419 -- 5,973 -- 5,973
Non-cash compensation for
general and
administrative matters... 1,395 -- -- 1,395 -- 1,395
Depreciation and
amortization............. -- 3,471 799(1) 4,270 -- 4,270
------- ------- -------- -------- -------- --------
Operating loss............... (1,949) (8,311) (799) (11,059) -- (11,059)
Interest expense........... 29 -- 34,354(2) 34,383 -- 34,383
------- ------- -------- -------- -------- --------
Net loss..................... (1,978) (8,311) (35,153) (45,442) -- (45,442)
Less: preferred stock
dividends.................. (9) -- -- (9) -- (9)
------- ------- -------- -------- -------- --------
Loss available to common
stockholders............... $(1,987) $(8,311) $(35,153) $(45,451) $-- $(45,451)
======= ======= ======== ======== ======== ========
Pro forma basic and diluted
loss per common share...... $ (0.04) (0.90) (0.72)
======= ======== ========
Pro forma weighted average
common shares
outstanding................ 50,264 50,264 62,764
======= ======== ========
</TABLE>
30
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
For the purpose of determining the pro forma effect of transactions
described above on our consolidated statement of operations for the year ended
December 31, 1999, the following adjustments have been made:
(1) Represents the amortization of intangible asset recorded from the Spokane
acquisition consisting of goodwill and customer lists in the amount of
$15,975 over a period of 20 years for goodwill which is the initial term of
the Sprint PCS management agreement and five years for customer lists which
is based on management's expectation to build-out the Spokane market.
(2) Represents additional interest expense based on the following:
<TABLE>
<S> <C>
Accrued interest and prepayment premium on senior
subordinated debt......................................... $ 91
Interest expense on $75,000 drawdown from senior credit
facility assuming an interest rate of 10%................. 7,500
Unused commitment fee of 1.375% on senior credit facility
assuming only minimum drawdowns........................... 2,200
Amortization of deferred financing fees from senior credit
facility over a period of 8.5 years....................... 835
Amortization of deferred financing costs relating to senior
subordinated discount notes over 10 years................. 811
Interest expense on senior subordinated discount notes...... 21,319
Amortization of the discount on senior subordinated discount
notes over 10 years....................................... 1,598
-------
$34,354
=======
</TABLE>
Excluded from the pro forma results of operations is a non-recurring charge of
$2,188 for the remaining discount on the senior subordinated note upon the early
extinguishment of the debt. This charge will be reflected as an extraordinary
item in the 2000 financial statements.
31
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
UBIQUITEL INC. AND SUBSIDIARIES
AS OF MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL EXCLUDING ADJUSTMENTS FOR AS
UBIQUITEL SPOKANE(1) THIS OFFERING PRO FORMA THIS OFFERING ADJUSTED
---------- ---------- ------------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents...... $ 33,729 $ -- $ 94,920 (2) $128,649 $ 92,087 (13) $220,736
Cash, restricted............... -- -- 75,000 (3) 75,000 -- 75,000
Prepaid expenses and other
assets....................... 2,067 93 -- 2,160 (937) 1,223
Property and equipment......... 9,022 18,932 -- 27,954 -- 27,954
Deferred financing costs,
net.......................... 7,363 -- 14,907 (4) 22,270 -- 22,270
Intangible assets.............. -- -- 15,975 (5) 15,975 -- 15,975
Other assets................... 182 -- -- 182 -- 182
-------- ------- -------- -------- -------- --------
TOTAL ASSETS............... $ 52,363 $19,025 $200,802 $272,190 $ 91,150 $363,340
======== ======= ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Accounts payable and accrued
expenses..................... $ 6,306 $ -- $ -- $ 6,306 $ -- $ 6,306
Senior credit facility......... -- -- 75,000 (6) 75,000 -- 75,000
Senior subordinated debt....... 5,812 -- (5,812)(7) -- -- --
Senior subordinated discount
notes........................ -- -- 136,297 (8) 136,297 -- 136,297
Redeemable warrants............ 2,758 -- (2,188)(9) 570 -- 570
STOCKHOLDERS' EQUITY:
Convertible preferred stock.... 19 -- -- 19 (19)(14) --
Common stock and additional
paid-in-capital.............. 51,330 -- 19,105 (10) 70,435 92,169 (15) 162,604
Accumulated deficit............ (13,862) -- (2,575)(11) (16,437) (1,000)(16) (17,437)
Sprint Spectrum L.P.'s equity
in assests to be sold........ -- 19,025 (19,025)(12) -- -- --
-------- ------- -------- -------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY..... $ 52,363 $19,025 $200,802 $272,190 $ 91,150 $363,340
======== ======= ======== ======== ======== ========
</TABLE>
32
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2000
(DOLLARS IN THOUSANDS)
For the purpose of determining the pro forma effect of transactions
described above on our consolidated balance sheet as of March 31, 2000 the
following adjustments have been made:
(1) The historical balance sheet of the Spokane, Washington District does not
reflect an amount for liabilities and stockholders' equity. The financial
statements provided by the Spokane predecessor were abbreviated financial
statements and identify only the assets to be sold. Sprint Spectrum L.P.'s
equity in assets to be sold is an assumed amount. As indicated in Note 4 of
the notes to the unaudited pro forma condensed consolidated balance sheet,
the purchase price for the Spokane acquisition was approximately $35,000 and
is reflected in the pro forma adjustments excluding this offering.
(2) Represents the following adjustments to cash and cash equivalents:
<TABLE>
<S> <C>
Proceeds from senior subordinated discount notes............ $152,277
Cash used to pay Spokane purchase price..................... (35,000)
Cash used to pay origination fees and expenses for senior
credit facility............................................ (7,100)
Cash used to pay fees and expenses for senior subordinated
discount notes............................................. (7,177)
Cash used to pay prepayment premium on senior subordinated
debt....................................................... (80)
Cash used to retire outstanding senior subordinated debt.... (8,000)
--------
$ 94,920
========
</TABLE>
(3) Represents the proceeds from the initial drawdown of $75,000 of the senior
credit facility to be held in escrow until specific conditions have been
satisfied as defined in the agreement.
(4) Represents the adjustments to deferred financing fees as follows:
<TABLE>
<S> <C>
Write-off of unamortized deferred financing fees related to
senior subordinated debt................................... $ (307)
Estimated origination fees and expenses related to senior
credit facility............................................ 7,100
Expenses related to senior subordinated discount notes...... 7,177
Additional warrants issued in connection with senior
subordinated discount notes................................ 321
Issuance of shares of preferred stock to preferred
stockholders convertible into 77,002 shares of common stock
to maintain a specific percentage stock ownership upon the
issuance of the warrants related to senior subordinated
discount notes............................................. 616
-------
$14,907
=======
</TABLE>
(5) The preliminary allocation of the purchase price for the acquisition of the
Spokane, Washington PCS network assets, which is based on our initial
determination of relative values, is reflected as follows and is expected to
be finalized in 2000:
<TABLE>
<CAPTION>
ALLOCATION
----------
<S> <C>
Prepaid expenses............................................ $ 93
Property and equipment, net................................. 18,932
Intangible assets including goodwill (20 year amortization)
and customer lists (5 year amortization)................... 15,975
-------
$35,000
=======
</TABLE>
The amortization period of 20 years for goodwill is based on the initial term
of the Sprint PCS management agreement. The amortization period of 5 years
for customer lists is based on management's expectation to build out the
Spokane market.
33
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2000
(DOLLARS IN THOUSANDS)
(6) Represents initial drawdown of the senior credit facility of $75,000.
(7) Represents retirement of senior subordinated debt.
(8) Represents value ascribed to the senior subordinated discount notes from the
gross proceeds of $152,277. The remaining $15,980 was ascribed to the
warrants and is reflected in stockholders' equity.
(9) Represents exercise of a warrant to purchase 4,978,150 shares of our common
stock issued in connection with the senior subordinated debt.
(10) Represents adjustments to stockholders' equity as follows:
<TABLE>
<S> <C>
Exercise of warrants issued in connection with senior
subordinated debt.......................................... $ 2,188
Warrants issued with senior subordinated discount notes..... 15,980
Additional warrants issued in connection with senior
subordinated discount notes................................ 321
Issuance of shares of preferred stock to preferred
stockholders convertible into 77,002 shares of common stock
to maintain a specific percentage stock ownership in
connection with our senior subordinated discount notes..... 616
--------
$ 19,105
========
</TABLE>
(11) Represents fees and expenses incurred as follows:
<TABLE>
<S> <C>
Write-off of unamortized deferred financing fees related to
the senior subordinated debt............................... $ (307)
Write-off of unamortized discount relating to senior
subordinated debt.......................................... (2,188)
Expenses relating to prepayment of senior subordinated
debt....................................................... (80)
--------
$ (2,575)
========
</TABLE>
(12) Represents the elimination of Sprint Spectrum L.P.'s assumed equity in
assets to be sold.
(13) Represents:
<TABLE>
<S> <C>
Proceeds of this offering................................... $100,000
Cash used to pay estimated fees and expenses net of amounts
prepaid.................................................... (6,913)
Cash used for payments to preferred stockholders upon
closing this offering...................................... (1,000)
--------
$ 92,087
========
</TABLE>
(14) Represents conversion of convertible preferred stock to common stock in
connection with this offering.
(15) Represents adjustments to stockholders' equity in connection with this
offering as follows:
<TABLE>
<S> <C>
Proceeds of this offering................................... $100,000
Estimated fees and expenses of this offering................ (7,850)
Conversion of preferred stock to common stock............... 19
--------
$ 92,169
========
</TABLE>
(16) Represents payments to preferred stockholders upon closing of this
offering.
34
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
UBIQUITEL INC.
- In the table below, we provide you with selected historical consolidated
financial and operating data for, the period from commencement of
operations on September 29, 1999 to December 31, 1999, and balance sheet
data as of December 31, 1999, which are derived from and should be read in
conjunction with the audited consolidated financial statements of
UbiquiTel Inc. and subsidiaries included elsewhere in this prospectus; and
- selected historical consolidated financial and operating data for the
three months ended March 31, 2000 and balance sheet data as of March 31,
2000, which are derived from and should be read in conjunction with the
unaudited consolidated financial statements of UbiquiTel Inc. and
subsidiaries included elsewhere in this prospectus.
In our opinion, the unaudited interim financial statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, which consist only of normal recurring adjustments, necessary to
present fairly the financial position and the results of operations for the
interim periods. Financial and operating results for the three months ended
March 31, 2000 are not necessarily indicative of the results that may be
expected for the full year.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS
SEPTEMBER 29, ENDED
1999 (INCEPTION) MARCH 31,
TO DECEMBER 31, 2000
1999, (UNAUDITED)
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
--------------------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................................ $ -- $ 69
Operating expenses:
General and administrative expenses excluding non-cash
compensation charges.................................... 554 907
Non-cash compensation expense for general and
administrative matters.................................. 1,395 --
Amortization of deferred stock compensation expense
granted to employees for general and administrative
matters................................................. -- 119
------- --------
Operating loss.............................................. (1,949) (957)
Interest expense (income)................................. 29 (35)
------- --------
Loss before extraordinary item.............................. (1,978) (922)
Extraordinary item--write-off of deferred financing costs
on early extinguishment of debt......................... -- (1,723)
Preferred stock dividends plus accretion.................. (9) (9,231)
------- --------
Net loss available to common stockholders................... $(1,987) $(11,876)
======= ========
Pro forma basic and diluted net loss per share of common
stock(1)................................................ $ (0.04) $ (0.24)
======= ========
BALANCE SHEET DATA:
Cash and cash equivalents................................. $23,959 $ 33,729
Total assets.............................................. 30,191 52,363
Long-term debt............................................ 5,812 5,812
Total stockholders' equity................................ 15,478 37,487
</TABLE>
------------------------
(1) Basic and diluted net loss per share of common stock is computed by dividing
net loss by the weighted average number of common shares outstanding after
giving effect to the conversion of preferred stock into common stock upon
the initial public offering and the exercise of warrants to purchase
4,978,150 shares of common stock which were issued in connection with the
senior subordinated notes.
35
<PAGE>
SPOKANE DISTRICT (WHOLLY OWNED BY SPRINT SPECTRUM L.P.)
The selected financial data presented below under the caption "Statement of
Operations Data" for each of the three years in the period ended December 31,
1999, and under the caption "Balance Sheet Data" as of December 31, 1999 and
1998, are derived from the condensed financial statements of the Spokane
District (wholly owned by Sprint Spectrum L.P.), the predecessor of Ubiquitel
Inc. and subsidiaries. The selected financial data presented below as of
March 31, 2000 and for the three-month periods ended March 31, 2000 and 1999
have been derived from unaudited condensed financial statements of the Spokane
District which have been prepared on the same basis as the Spokane District's
audited financial statements and, in the opinion of Sprint Spectrum L.P.'s
management, include all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the financial position and
results of operations for these periods. The results of operations for the three
months ended March 31, 2000 are not necessarily indicative of the results that
may be expected for the full year. The Spokane District did not launch
operations until December 16, 1996. As a result, we have not presented financial
data for 1996 because revenues were less than $10,000. The data set forth below
should be read in conjunction with the Spokane District's financial statements
and accompanying notes included elsewhere in this prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................................ $ 1,246 $ 3,280 $ 5,625 $1,136 $1,574
Expenses:
Cost of service and equipment............................. 2,903 3,970 5,046 747 779
Selling, general and administrative expense............... 8,168 4,470 5,419 997 1,214
Depreciation.............................................. 2,968 3,112 3,471 828 931
------- ------- ------- ------ ------
Expenses in excess of net revenues.......................... $12,793 $ 8,272 $ 8,311 $1,436 $1,350
======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1998 1999 AS OF MARCH 31, 2000
----------- -------- ---------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets purchased.................................... $19,551 $19,784 $19,025
</TABLE>
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and the related notes included elsewhere in
this prospectus. The discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from the
results anticipated in these forward-looking statements as a result of factors
including, but not limited to, those under "Risk Factors" and elsewhere in this
prospectus. We are a development stage company and intend to significantly
expand our operations. Accordingly, we do not believe the discussion and
analysis of our historical financial condition and results of operations set
forth below are indicative nor should they be relied upon as an indicator of our
future performance.
OVERVIEW
In October 1998, a limited liability company whose sole member was The
Walter Group, entered into a management agreement with Sprint PCS whereby it
became the Sprint PCS affiliate with the exclusive right to provide 100%
digital, 100% PCS services under the Sprint and Sprint PCS brand names in the
Reno/Tahoe market. The Walter Group is an international wireless
telecommunications consulting and service company based in Seattle, Washington.
The limited liability company subsequently changed its name to Ubiquitel L.L.C.
During the period from October 1998 to October 1999, Ubiquitel L.L.C. attempted
unsuccessfully to obtain financing for the build-out of the Reno/Tahoe market.
In November 1999, Ubiquitel L.L.C. assigned the management and related
agreements to us. Ubiquitel L.L.C. had no operations or financial transactions
prior to the assignment of these agreements to us.
In December 1999, we amended our management agreement with Sprint PCS to
expand or markets to include a total of 7.7 million residents in the western and
midwestern United States.
In March 2000, we entered into a new $250.0 million senior credit facility.
In April 2000, we completed a private sale of 300,000 units consisting of
our senior subordinated discount notes due 2010 and warrants to purchase, in the
aggregate, 3,579,000 shares of our common stock, after giving effect to a
two-for-one stock split to be effective as of the date of this prospectus. We
received gross proceeds of approximately $152.3 million from the sale of the
units.
In April 2000, we acquired Sprint PCS' Spokane, Washington PCS network and
related assets for $35.0 million cash. We acquired switching equipment,
transmitting and receiving equipment at 41 radio communications sites, ancillary
equipment, prepaid expenses, goodwill and customer lists. We did not acquire any
customer related assets or liabilities such as accounts receivable or accrued
liabilities. The Spokane market did not launch operations until December 16,
1996, and had no significant revenues until 1997.
We have currently commenced limited operations in one of our markets, which
together with the Spokane, Washington market, cover approximately 500,000
residents. We currently have approximately 9,000 subscribers. We expect to cover
approximately 55% of the resident population in our markets by the end of 2001
and expect to cover approximately 63% by June 30, 2004 upon completion of our
build-out. We anticipate that the net proceeds of this offering, when combined
37
<PAGE>
with the proceeds from our sale of preferred stock and senior subordinated
discount notes and the availability of borrowings under our senior credit
facility, will be adequate to fund our anticipated network build-out plan,
anticipated capital expenditures, working capital requirements, operating losses
and other cash needs through anticipated break-even cash flow from operations in
2003.
We are a development stage company with very limited operations and
revenues, significant losses and substantial capital requirements. From our
inception on September 29, 1999 through December 31, 1999, we incurred losses of
approximately $2.0 million. On a pro forma basis, after giving effect to various
transactions described in "Unaudited Pro Forma Condensed Consolidated Financial
Data," loss available to common stockholders from our inception through December
31, 1999 would have been approximately $45.5 million and loss available to
common stockholders would have been approximately $20.4 million for the three
months ended March 31, 2000. We expect to continue to incur significant
operating losses and to generate significant negative cash flow from operating
activities until at least 2003 while we develop and construct our PCS network
and build our customer base.
As a Sprint PCS affiliate, we do not own the licenses to operate our network
and instead, we pay Sprint PCS for the use of its licenses. Under our management
agreement with Sprint PCS, Sprint PCS is entitled to receive 8.0% of all
collected revenue from Sprint PCS subscribers based in our markets and fees from
wireless service providers other than Sprint PCS when their subscribers roam
into our network. We are responsible for building, owning and managing the
portion of the Sprint PCS Network located in our markets under the Sprint and
Sprint PCS brand names. We believe that our markets are important to Sprint PCS'
strategy of providing PCS service nationwide. Sprint PCS paid approximately
$90.0 million for the PCS licenses in our markets and will incur additional
expenses for microwave clearing. However, Sprint PCS is still constructing its
nationwide network and does not offer PCS services, either on its own network or
through its roaming agreements, in every city in the United States. Sprint PCS
has entered into, and anticipates entering into, management agreements similar
to ours with companies in other markets under its nationwide PCS build-out
strategy. Our results of operations are dependent on Sprint PCS' network and, to
a lesser extent, on the networks of our affiliates.
Under our long-term management agreement with Sprint PCS, we expect to
purchase our network and subscriber equipment under Sprint PCS' vendor contracts
that reflect its volume discounts. In addition, we will have access to Sprint
PCS' national marketing support and will be able to take advantage of Sprint
PCS' retail distribution agreements with national retailers such as Circuit
City, Kmart and OfficeMax and an exclusive PCS distribution agreement with
RadioShack. We intend to offer national plans designed by Sprint PCS as well as
specialized local plans tailored to our markets' demographics. As part of our
marketing process, we may offer our handsets at a price less than our cost. We
expect to continue to employ these discounts in an effort to grow our subscriber
base. For the forseeable future, we expect that the cost of handsets will exceed
our handset revenues.
As a Sprint PCS affiliate, we will purchase a full suite of support services
from Sprint PCS. Initially, the charges for these services will be lower than if
we provided these services ourselves. In addition, we expect that, by using
these established services, our capital expenditures and demands on our
management's time in connection with support services will be lower than if we
developed and provided the services ourselves. We will have access to these
services during the term of our Sprint PCS management agreement unless Sprint
PCS provides us at least nine
38
<PAGE>
months advance notice of its intention to terminate any particular service.
Because of the economic benefits to us, we will initially purchase: customer
billing and collections; customer care; subscriber activation including credit
verification; handset logistics; network operations control center monitoring;
national platform interconnectivity; voice mail; directory assistance and
operator services; long distance; and roaming clearinghouse services. If Sprint
PCS terminates any of these services or increases the amount it charges us for
any of these services, our operating costs may increase and our operations may
be interrupted or restricted.
In addition to the benefits and services provided through our agreement with
Sprint PCS, we will also utilize the services of third parties such as Lucent
Technologies, LCC International and SpectraSite Communications to successfully
complete the build-out and support the operations of our network. As a result of
this outsourcing, we are substantially dependent on Sprint PCS and the other
third parties for the build-out and operation of our network. If we fail to
complete the build-out on schedule or meet Sprint PCS' program requirements, we
would be in breach of our management agreement with Sprint PCS that could result
in its termination. If the management agreement is terminated, we will no longer
be able to offer Sprint PCS products and services, and we may be required to
sell our operating assets to Sprint PCS at a discount to market value and
without further stockholder approval.
Sprint and MCI WorldCom announced on October 5, 1999 that they have agreed
to merge to form a new company called WorldCom. The merger is subject to various
conditions, including the approvals of the shareholders of both companies, the
Federal Communications Commission, the Justice Department and various state
government bodies and foreign antitrust authorities. Until the merger actually
occurs, we will not know what effect it will have on Sprint's business. Any
negative impact on Sprint could have a negative impact on us as a Sprint PCS
affiliate.
RESULTS OF OPERATIONS
PROSPECTIVE INCOME STATEMENT
REVENUES. We will derive our revenues from four general sources that are
described in order of their significance:
- SUBSCRIBER REVENUE. Subscriber revenue consists of monthly recurring
service charges and monthly non-recurring charges for local, long
distance, travel and roaming airtime usage in excess of the pre-subscribed
usage plan. Our customers' charges are dependent on their rate plans,
based on the number of minutes included in their plan. We intend to use
the Sprint PCS billing platform and rate plans which are designed to offer
simple and understandable options. We have limited flexibility to change
the pricing on these rate plans, and must obtain Sprint PCS' final
approval. We expect subscriber revenue to constitute the majority of our
revenues in the future. We do not earn revenue for the activation of new
customers.
- SPRINT PCS TRAVEL REVENUE. Sprint PCS travel revenue is generated when a
Sprint PCS subscriber based outside our markets uses our portion of the
Sprint PCS network. We anticipate that travel revenue will represent a
substantial portion of our future revenue. Under our agreements with
Sprint PCS, in October 2000, Sprint PCS can change the current fee we
receive for each Sprint PCS travel minute. The change by Sprint PCS in the
travel revenue we are paid could substantially decrease our revenues.
39
<PAGE>
- NON-SPRINT PCS ROAMING REVENUE. Non-Sprint PCS roaming revenue is
generated when a non-Sprint PCS subscriber uses our portion of the Sprint
PCS network. We must have roaming arrangements with other wireless
providers in order to permit roaming for our subscribers and for the
non-Sprint PCS subscribers.
- PRODUCT SALES REVENUE. Product sales revenue is generated from the sale of
handsets and accessories. We record and retain 100% of the revenue from
the sale of handsets and accessories, net of an allowance for returns, as
product sales revenue.
We recognize 100% of revenues from Sprint PCS' subscribers based in our
markets, proceeds from the sale of handsets and accessories and fees from Sprint
PCS when their customers travel into our portion of the Sprint PCS network.
Under our management agreement with Sprint PCS, Sprint PCS receives 8% of all
collected revenue from Sprint PCS subscribers based in our markets and fees from
wireless service providers other than Sprint PCS when their subscribers roam
into our portion of the Sprint PCS network. We report the amount retained by
Sprint PCS as an operating expense.
OPERATING EXPENSES. We expect that our operating expenses will principally
include network operations, sales and marketing and general and administrative
expenses, some of which will be incurred through our management and services
agreements with Sprint PCS and others of which we will incur directly.
- NETWORK OPERATIONS EXPENSES. Network operations expenses include radio
communications site lease costs, utilities, network control maintenance,
network control site leases, engineering personnel, transport facilities,
interconnect charges and handset and equipment costs. Sprint PCS can
adjust the program requirements at any time so long as it gives us at
least 30 days prior notice which may increase our network operations
expense. We will also be charged travel fees by Sprint PCS and roaming
fees by other wireless carriers when our customers make a wireless call on
networks outside our markets. We also include as an expense the 8% of all
collected revenue to which Sprint PCS is entitled.
- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling expenses relate to
our distribution channels, sales representatives, sales support personnel,
our retail stores, advertising programs and residual commissions. General
and administrative expenses include our corporate executive payroll,
compensation and benefits, insurance and facilities, receivable related
bad debt, and local market finance and administration expenses. The fees
we pay to Sprint PCS for the use of their support services, including
billing and collections services, customer care and subscriber activation
are also included in this expense category. If Sprint PCS terminates a
service or increases the amount it charges us for a support service, our
operating costs may increase.
DEPRECIATION AND AMORTIZATION EXPENSE. We expect to depreciate our property
and equipment using the straight-line method over five to ten years.
Amortization of intangible asset from our Spokane acquisition in the amount of
$16.0 million will be amortized over a period of 20 years.
INTEREST EXPENSE. We will accrue interest at a rate of 14% per annum on our
senior subordinated discount notes through April 15, 2005 and will pay interest
semiannually in cash thereafter. Interest on our senior credit facility will
accrue at our option at the prime rate or the federal funds rate plus specified
margins or the reserve adjusted London interbank offered rate.
40
<PAGE>
Interest expense will also include the amortized amount of deferred financing
fees relating to our senior credit facility and senior subordinated discount
notes. We expect our interest expense to increase in the future as we borrow
under our senior credit facility to fund our network build-out and operating
losses. See "Description of Certain Indebtedness."
HISTORICAL INCOME STATEMENTS
UBIQUITEL
THREE MONTHS ENDED MARCH 31, 2000
During the three months ended March 31, 2000 we earned nominal revenues
attributable to travel airtime. We continued developing our PCS business in
portions of Nevada and California.
We incurred a net loss of $11.9 million, of which $8.8 million is
attributable to our issuance of Series B preferred stock at a price less than
the offering price shown on the cover of this prospectus.
We incurred general and administrative expenses of $906,679, including
nominal amounts payable to Sprint PCS, during the period in addition to a
non-cash expense related to amortization of deferred stock compensation expense
of $118,643. We are a development stage company and we believe general and
administrative expenses incurred during this period are not indicative of future
general and administrative expenses.
During the period we replaced a $25.0 million credit facility with Paribas
with a $250.0 million facility with Paribas. We wrote off $1.7 million in
deferred financing costs in connection with the original facility and recognized
this as an extraordinary item.
During the period we incurred interest expense of approximately $348,000
consisting of the commitment fee on our $25.0 million facility and interest on
the long-term debt. We received approximately $383,000 in interest income,
resulting in net interest income of approximately $35,000.
We are a development stage company and have incurred an aggregate loss since
inception of $13.9 million. The operating results during this three month period
are not indicative of the anticipated results of operations that we expect to
achieve following commencement of our commercial operations.
Amortization of deferred stock compensation related to options granted to
employees for general and administrative matters totaled approximately $118,643
for the period, based on the fair market value of the common stock underlying
options granted during the period. We assumed for this purpose that the fair
market value of common stock was equal to the midpoint of the range of the
offering price shown on the cover of this prospectus.
FROM SEPTEMBER 29, 1999 (INCEPTION) TO DECEMBER 31, 1999
From September 29, 1999 (inception) through December 31, 1999, our operating
activities were focused primarily on developing a PCS business in portions of
Nevada, including Reno, Carson City, Lake Tahoe and the transportation corridor
west along I-80 to Auburn, California. During this period we did not generate
any revenues and, as a result, have incurred operating losses since inception.
During this period, total cumulative expenses of approximately $2.0 million
41
<PAGE>
were incurred. These expenses related to non-cash compensation for general and
administrative matters, salaries and benefits, professional fees and interest
expense. The operating results during this period are not indicative of the
anticipated results of operations which we expect to achieve, following
commencement of commercial operations, as a Sprint PCS affiliate.
Non-cash compensation for general and administrative matters totaled
approximately $1.4 million for the period. This expense was determined using the
provisions of Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees" and was based on the fair market value of the common stock
issued on November 1, 1999.
SPOKANE DISTRICT
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31,
1999
Net service revenues increased by $0.5 million or 48.2% to $1.4 million in
first quarter 2000 compared to first quarter 1999. Net service revenues
primarily consisted of subscriber revenue from monthly service charges. The
increase is primarily attributable to an increased number of subscribers.
Net equipment revenues decreased by approximately $20,000 or 11.8% to
$161,000 in first quarter 2000 compared to first quarter 1999. Net equipment
revenues primarily consisted of sales of handset and accessory equipment. The
decrease is primarily due to lower retail sales prices for handsets partially
offset by increased subscriber additions.
Costs of services increased by $0.1 million or 57.4% in first quarter 2000
compared to first quarter 1999. As a percentage of net service revenues, these
costs represented approximately 29% of revenues in first quarter 2000 compared
to approximately 27% of revenues in 1999. Costs of services as a percentage of
net service revenues have remained relatively steady.
Cost of equipment decreased by $0.1 million or 23.8% to $0.4 million in
first quarter 2000 compared to first quarter 1999. As a percentage of net
equipment revenues, these costs represented approximately 232% of revenues in
first quarter 2000 compared to approximately 268% of revenues in 1999. As part
of Sprint Spectrum L.P.'s marketing plan, handsets are normally sold at prices
below Sprint Spectrum L.P.'s cost. The decrease in cost of equipment as a
percentage of net equipment revenues is primarily attributable to decreases in
handset costs somewhat offset by lower handset sales prices.
Selling, general and administrative expenses increased by $0.2 million or
21.7% to $1.2 million in first quarter 2000 compared to first quarter 1999. As a
percentage of revenues, these expenses represented approximately 77% of revenues
in first quarter 2000 compared to approximately 88% in 1999. The increase is
primarily attributable to increased activity offset somewhat by increased
efficiencies.
Depreciation expense increased by $0.1 million or 12.5% to $0.9 million in
first quarter 2000 compared to first quarter 1999. This increase is primarily
attributable to an increase in the asset base.
Expenses in excess of net revenues decreased by approximately $86,000 or
6.0% to $1.4 million in first quarter 2000 compared to first quarter 1999. This
decrease is a result of increased costs and expenses more than offset by
increased revenue.
42
<PAGE>
Management notes the 2000 operations reflect the operation of the Spokane
District by Sprint PCS. Historical results are not necessarily indicative of
future operations that we will manage.
FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1998
Net service revenues increased by $2.2 million or 83.8% to $4.8 million in
1999 compared to 1998. Net service revenues primarily consisted of subscriber
revenue from monthly service charges. The increase is primarily attributable to
an increased number of subscribers.
Net equipment revenues increased by approximately $0.2 million or 25.0% to
$0.9 million in 1999 compared to 1998. Net equipment revenues primarily
consisted of sales of handsets and accessory equipment. The increase is
primarily attributable to increased subscriber additions partially offset by
lower retail sales prices for handsets.
Costs of services increased by $0.6 million or 36.2% to $2.3 million in 1999
compared to 1998. As a percentage of net service revenues, these costs
represented approximately 49% of revenues in 1999 compared to approximately 67%
of revenues in 1998. The increase in costs is primarily attributable to the
increase in revenues somewhat offset by increased efficiencies.
Cost of equipment increased by $0.5 million or 20.1% to $2.7 million in 1999
compared to 1998. As a precentage of net equipment revenues, these costs
represented approximately 312% of revenues in 1999 compared to approximately
325% of revenues in 1998. As part of Sprint Spectrum L.P.'s marketing plan,
handsets are normally sold at prices below Sprint Spectrum L.P.'s cost. The
decrease in cost of equipment as a percentage of net equipment revenues is
primarily attributable to decreases in handset costs somewhat offset by lower
retail sales prices.
Selling, general and administrative expenses increased by $0.9 million or
21.2% to $5.4 million in 1999 compared to 1998. As a percentage of revenues,
these expenses represented approximately 96% of revenues in 1999 compared to
approximately 136% in 1998. The increase is primarily attributable to increased
activity offset somewhat by increased efficiencies.
Depreciation expense increased by $0.4 million or 11.5% to $3.5 million in
1999 compared to 1998. This increase is primarily attributable to an increase in
the asset base.
Expenses in excess of net revenues increased by approximately $40 thousand
or 0.5% to $8.3 million in 1999 compared to 1998. This increase is a result of
increased costs and expenses offset by increased revenues.
Management notes the 1999 operations reflect the operation of the Spokane
District by Sprint PCS. Historical results are not necessarily indicative of
future operations that we will manage.
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1997
Net service revenues increased by $1.9 million or 281.1% to $2.6 million in
1998 compared to 1997. Net service revenues primarily consisted of subscriber
revenue from monthly service charges. The increase is primarily attributable to
an increased number of subscribers.
Net equipment revenues increased by approximately $0.1 million or 21.9% to
$0.7 million in 1998 compared to 1997. Net equipment revenues primarily
consisted of sales of handsets and accessory equipment. The increase is
primarily attributable to increased subscriber additions partially offset by
lower retail sales prices for handsets.
43
<PAGE>
Costs of services increased by $0.4 million or 25.7% to $1.7 million in 1998
compared to 1997. As a percentage of net service revenues, these costs
represented approximately 67% of revenues in 1998 compared to approximately 202%
of revenues in 1997. The increase in costs is primarily attributable to the
increase in revenues somewhat offset by increased efficiencies.
Cost of equipment increased by $0.7 million or 46.7% to $1.5 million in 1998
compared to 1997. As a percentage of net equipment revenues, these costs
represented approximately 325% of revenues in 1998 compared to approximately
270% of revenues in 1997. As part of Sprint Spectrum L.P.'s marketing plan,
handsets are normally sold at prices below Sprint Spectrum L.P.'s cost. The
increase in cost of equipment as a percentage of net equipment revenues is
primarily attributable to lower retail sales prices of handsets in 1998.
Selling, general and administrative expenses decreased by $3.7 million or
45.3% to $4.5 million in 1998 compared to 1997. As a percentage of revenues,
these expenses represented approximately 136% of revenues in 1998 compared to
approximately 655% in 1997. The decrease is primarily attributable to the end of
start-up activities offset somewhat by increased revenue generating activity.
Depreciation expense increased by $0.1 million or 4.8% to $3.1 million in
1998 compared to 1997. This increase is primarily attributable to an increase in
the asset base.
Expenses in excess of net revenues decreased by $4.5 million or 35.3% to
$8.3 million in 1998 compared to 1997. This decrease is a result of increased
revenues and decreased selling, general and administrative expenses somewhat
offset by increased costs of services and equipment.
Management notes the 1998 operations reflect the operation of the Spokane
District by Sprint PCS. Historical results are not necessarily indicative of
future operations that we will manage.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, our activities have consisted principally of raising
capital, consummating and supporting our agreements with Sprint PCS, developing
the initial design of our PCS network and adding to our management team. We have
relied on the proceeds from equity and debt financing, rather than revenues, as
our primary sources of capital. Specifically, operations during this development
phase have been funded through equity infusions of $42.0 million in the form of
preferred stock, the incurrence of subordinated indebtedness of $8.0 million as
well as availability under our prior $25.0 million credit facility, which has
been replaced by our $250.0 million senior credit facility. See "Description of
Certain Indebtedness."
Completion of our PCS network will require substantial capital. Our
build-out plan includes the installation of three switches and over 500 radio
communications sites by the end of 2001. In addition, we will develop
approximately 20 company-owned Sprint PCS stores and associated administrative
systems within the same time period. We have commenced limited operations in one
of our markets, which together with the Spokane, Washington market, cover
approximately 500,000 residents. We expect to cover approximately 55% of the
resident population in our markets by the end of 2001 and expect to cover
approximately 63% upon the completion of our build-out. We anticipate that the
net proceeds of this offering, when combined with the proceeds from our sale of
preferred stock and senior subordinated discount notes and the availability of
borrowings under our $250.0 million senior credit facility, will be adequate to
fund our anticipated
44
<PAGE>
network build-out plan, anticipated capital expenditures, working capital
requirements, operating losses and other cash needs through anticipated
break-even cash flow from operations in 2003. The actual funds required to
build-out our PCS network and fund operating losses and working capital needs
may vary materially from these estimates, and additional funds could be required
in the event of unforeseen delays, cost overruns, unanticipated expenses,
engineering design changes and other technological risks. If we expand more
rapidly than currently anticipated, or if our working capital needs exceed our
current expectations, we will need to raise additional capital from equity or
debt sources. We cannot be sure that we will be able to obtain the additional
financing to satisfy our cash requirements or to implement our growth strategy
on acceptable terms or at all. If we cannot obtain such financing on terms
acceptable to us, we may be forced to curtail our planned business expansion and
may be unable to fund our ongoing operations.
Net cash used by operating activities was approximately $2.2 million for the
three months ended March 31, 2000 and an aggregate of $2.4 million from
inception to March 31, 2000. Cash used in operating activities for the period
was attributable to operating losses and working capital needs. Net cash used in
investing activities was approximately $5.4 million during the three months
ended March 31, 2000. The expenditures were related primarily to the purchase of
equipment needed to begin construction on our portion of the Sprint PCS Network.
Net cash provided by financing activities was approximately $17.4 million,
consisting primarily of the preferred stock issued during the period.
On March 31, 2000, we signed a new senior secured credit agreement with
Paribas. The new senior credit facility consists of a revolving loan of up to
$55.0 million, a term loan A of $120.0 million and a term loan B of
$75.0 million. Until the earlier to occur of the syndication of the senior
credit facility, or August 2000, Paribas may re-allocate the amounts among the
revolving loan, term loan A and term loan B at their discretion. Concurrently
with the closing of our senior subordinated discount notes, we borrowed
$75.0 million of term loans, which were funded into an escrow account. The
escrow account will remain the property of our lenders and will not be released
to us if an event of default has occurred under the credit agreement.
Additionally, the escrow account will not be released to us until specified
conditions have been satisfied. These conditions include, among others, evidence
that we have used all of the proceeds from our sale of senior subordinated
discount notes and from this offering to pay fees and expenses in connection
with these offerings, to fund the build-out of our network or for other general
corporate and working capital purposes. Additional borrowings under our senior
credit facility must be placed into escrow until the conditions to release our
initial borrowing of $75.0 million have been satisfied. Our senior credit
facility contains financial and other covenants customary for the wireless
industry, and is secured by a first priority lien on our assets and a pledge by
us of our capital stock in UbiquiTel Operating Company. Scheduled amortization
payments of principal for the term loans under the senior credit facility begin
on June 30, 2004.
On April 11, 2000, we issued 300,000 units consisting of senior subordinated
discount notes due 2010 and warrants to purchase 3,579,000 shares of our common
stock. The notes mature on April 15, 2010 and are limited to an aggregate
principal amount at maturity of $300.0 million. The notes generated gross
proceeds to us of $152.3 million. The notes are general, unsecured obligations
subordinated in right of payment to all senior debt, including obligations under
our senior secured credit facility. The notes accrue interest at a rate of 14%
per annum, computed on a semi-annual basis, calculated from April 11, 2000. The
notes will not bear interest payable in
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cash prior to April 15, 2005, and will bear interest payable semi-annually in
cash on each of April and October 15, beginning October 15, 2005.
The indenture that governs our senior subordinated discount notes and the
credit agreement that governs our senior credit facility impose material
operating and financial restrictions on us. These restrictions, subject to
ordinary course of business exceptions, may limit our ability to engage in some
transactions, such as making investments, selling assets and borrowing
additional money. These restrictions could limit our ability to obtain debt
financing, refinance or pay principal or interest on outstanding debt or make
acquisitions for cash or debt. Also, we will have to dedicate a substantial
portion of our cash flow from operations to the payment of interest on, and
principal of, our debt, which will reduce funds available for other purposes.
As part of our management agreement, Sprint PCS requires us to build-out
portions of our network by various dates including December 31, 2000, March 31,
2001, September 30, 2001 and June 1, 2005. See "The Sprint PCS Agreements--The
Management Agreement--Network build-out." We expect our PCS network build-out
will require approximately $239.0 million of capital expenditures by the end of
2003. The table below identifies our planned capital expenditures through 2003.
<TABLE>
<CAPTION>
ESTIMATED
CAPITAL EXPENDITURES
YEAR (IN MILLIONS)
---- --------------------
<S> <C>
2000...................................................... $120.0
2001...................................................... 61.0
2002...................................................... 25.0
2003...................................................... 33.0
</TABLE>
On March 31, 2000, we had working capital of $29.5 million, calculated by
subtracting current liabilities of $6.3 million from current assets of
$35.8 million.
Currently, we have limited sources of revenue to meet our anticipated
capital requirements. We expect the primary sources of funding to be the
proceeds provided by this offering, our sale of senior subordinated discount
notes and borrowings available under our $250.0 million senior credit facility.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to certain market risks which are inherent in our financial
instruments. These instruments arise from transactions entered into in the
normal course of business. We are currently subject to interest rate risk on our
existing credit facility. Our fixed rate debt will consist primarily of the
accreted balance of our senior subordinated discount notes. Our variable rate
debt will consist of borrowings made under our $250.0 million senior credit
facility.
Our primary market risk exposure will relate to:
- the interest rate risk on long-term and short-term borrowings;
- our ability to refinance our senior subordinated discount notes at
maturity at market rates; and
- the impact of interest rate movements on our ability to meet interest
expense requirements and meet financial covenants.
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We may decide, from time to time, to manage the interest rate risk on our
outstanding long-term and short-term debt through the use of fixed and variable
rate debt and interest rate swaps, but are not obligated to do so.
At December 31, 1999, as adjusted to give effect to this offering, our sale
of preferred stock and senior subordinated discount notes, our $250.0 million
senior credit facility and expected borrowings thereunder, and in each case the
use of proceeds therefrom, only the borrowings under our senior credit facility
bear interest at variable rates. Assuming $75.0 million of borrowings at
variable rates and assuming a two percentage point increase in the average
interest rate under these borrowings, it is estimated that our interest expense
for the year ended December 31, 1999, would have increased by approximately $1.5
million. In the event of an adverse change in interest rates, management would
likely take actions that would mitigate our exposure to interest rate risk,
through interest rate swaps or otherwise; however, due to the uncertainty of the
actions that would be taken and their possible effects, this analysis assumes no
such action. Further, this analysis does not consider the effects of the change
in the level of overall economic activity that could exist in such an
environment.
INFLATION
Management believes that inflation has not had, and will not have, a
material adverse effect on our results of operations.
SEASONALITY
Our business is seasonal because the wireless industry is heavily dependent
on fourth quarter results. Among other things, the industry relies on
significantly higher customer additions and handset sales in the fourth quarter
as compared to the other three fiscal quarters. The factors contributing to this
trend include the increasing use of retail distribution, which is dependent on
year-end holiday shopping, the timing of new product and service offerings,
competitive pricing pressures and aggressive marketing and promotions during the
holiday season.
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BUSINESS
OVERVIEW
We are the exclusive provider of Sprint PCS digital wireless personal
communications services to four midsize and smaller markets in the western and
midwestern United States. Through our management agreement with Sprint PCS, we
have the exclusive right to provide 100% digital, 100% PCS products and services
under the Sprint and Sprint PCS brand names in our markets which include a total
population of approximately 7.7 million residents. We are among 18 companies,
which we believe are unrelated to each other and to Sprint PCS, that have
entered into affiliation agreements with Sprint PCS to provide Sprint PCS
products and services throughout the United States. Sprint PCS, together with
its affiliates including us, operates the largest all-digital, all-PCS
nationwide wireless network in the United States based on covered population,
already covering more than 190 million residents in more than 330 metropolitan
markets. Sprint PCS has PCS licenses to cover more than 270 million people
across all 50 states, Puerto Rico and the U.S. Virgin Islands. However, Sprint
PCS does not currently offer PCS services in every state in the United States.
We believe that our strategic relationship with Sprint PCS provides us with
a significant competitive advantage because of its strong brand name
recognition, quality products and services, established distribution channels,
long-standing equipment vendor relationships and all digital nationwide
coverage. We further believe that our relationship with Sprint PCS will allow us
to establish high quality, branded wireless services more quickly, at a lower
cost and with lower initial capital requirements than would otherwise be
possible.
We have commenced limited operations in one of our markets, which together
with our recent acquisition of the Spokane, Washington market from Sprint PCS,
cover approximately 500,000 residents. We currently have approximately 9,000
subscribers. We expect to cover approximately 55% of the resident population in
our markets by the end of 2001 and expect to cover approximately 63% upon
completion of our build-out. We anticipate that the net proceeds of this
offering, when combined with the proceeds from our sale of preferred stock and
senior subordinated discount notes and the availability of borrowings under our
senior credit facility, will be adequate to fund our anticipated network
build-out plan, capital expenditures, working capital requirements, operating
losses and other cash needs through anticipated break-even cash flow from
operations in 2003.
We have assembled an experienced management team to execute our network
build-out and business strategy. Our senior management team has an average of
over ten years of experience in the wireless communications industry with
companies such as Comcast Cellular Communications, PacTel Cellular and Frontier
Cellular Communications. Donald A. Harris, our Chairman of the Board, President
and Chief Executive Officer, previously was president of Comcast Cellular
Communications and managed much of its network build-out in Pennsylvania, New
Jersey and Delaware with a covered population of over 8 million residents. Upon
completion of this offering, our senior management will own approximately 12.2%
of our common stock assuming conversion of all of our outstanding warrants and
options to purchase our common stock.
In October 1998, UbiquiTel L.L.C., whose sole member was The Walter Group,
entered into an agreement with Sprint PCS for the exclusive rights to market
Sprint's 100% digital, 100% PCS products and services to the residents in the
Reno/Tahoe Nevada market. The Walter Group is an
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international wireless telecommunications consulting and service company based
in Seattle, Washington. UbiquiTel L.L.C. had no financial transactions from its
inception on August 24, 1998 to September 29, 1999. On September 29, 1999,
UbiquiTel Inc. was incorporated. In November 1999, UbiquiTel L.L.C. assigned all
of its material contracts including the rights to the Sprint PCS agreements to
UbiquiTel Inc., which were then subsequently assigned to UbiquiTel Operating
Company, which was formed in November 1999. On December 28, 1999, UbiquiTel Inc.
amended its agreement with Sprint PCS to expand our markets to include Northern
California, Spokane/ Montana, Southern Idaho/Utah/Nevada and Southern
Indiana/Kentucky which together with Reno/ Tahoe contain approximately
7.7 million residents.
The description of our business and other descriptions in this prospectus
contain product names, trade names and trademarks of other companies.
WIRELESS INDUSTRY GROWTH
Since the introduction of commercial cellular service in 1983, the wireless
communications industry has experienced dramatic growth. The number of wireless
subscribers for cellular, wireless personal communications services and enhanced
specialized mobile radio service has increased from an estimated 340,213 at the
end of 1985 to an estimated 86.0 million as of December 31, 1999, according to
the Cellular Telecommunications Industry Association, an international
association for the wireless industry. The following chart sets forth statistics
for the domestic wireless telephone industry as a whole, as published by the
Cellular Telecommunications Industry Association.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
WIRELESS INDUSTRY STATISTICS(1)
Total service revenues (in billions)..... $14.2 $19.1 $23.6 $27.5 $33.1 $40.0
Wireless subscribers at end of period
(in millions).......................... 24.1 33.8 44.0 55.3 69.2 86.0
Subscriber growth........................ 50.8% 40.0% 30.4% 25.6% 25.1% 24.3%
Average local monthly bill(2)............ $56.21 $51.00 $47.70 $42.78 $39.43 $41.24
</TABLE>
------------------------
(1) Reflects domestic commercial cellular, enhanced specialized mobile radio
service and wireless personal communications services providers.
(2) Does not include revenue from roaming and long distance.
Paul Kagan Associates, Inc., an independent media and telecommunications
research firm, estimates in its publication, KAGAN'S WIRELESS INDUSTRY
PROJECTIONS--January 14, 2000, that the number of domestic wireless users will
increase to approximately 107 million by the end of 2000 and 202 million by the
end of 2005. This growth is expected to be driven largely by a substantial
projected increase in wireless personal communications services users, who are
forecast to account for approximately 21% of total wireless users in 2000 and
41% in 2005, representing a significant increase from approximately 10% as of
the end of 1998. Paul Kagan Associates projects that total wireless industry
penetration, defined as the number of wireless subscribers nationwide divided by
total United States population, will grow from an estimated 38% in 2000 to 69%
in 2005. The
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foregoing market statistics may not reflect the future growth rates of the
wireless communications industry generally nor our growth rate specifically.
We believe that a significant portion of the predicted growth in the
consumer market for wireless telecommunications will result from:
- anticipated declines in costs of service;
- increased service and pricing versatility; and
- increased awareness of the productivity, convenience and privacy benefits
associated with the services offered by wireless personal communications
services providers.
We also believe that the rapid growth in the use of laptop computers and
personal digital assistants, combined with emerging software applications for
delivery of electronic mail, fax and database searching, will contribute to the
growing demand for wireless services.
SPRINT PCS
Sprint is a diversified telecommunications service provider whose principal
activities include long distance service, local service, wireless
telecommunications products and services, product distribution and directory
publishing activities, and other telecommunications activities, investments and
alliances. Sprint PCS, a wholly-owned subsidiary of Sprint, operates the only
100% digital, 100% PCS wireless network in the United States with licenses to
provide service nationwide using a single frequency and a single technology. The
Sprint PCS network uses code division multiple access or CDMA technology
nationwide.
Sprint launched the first commercial PCS service in the United States in
November 1995. Since then, Sprint PCS has experienced rapid subscriber growth,
providing service to more than 5.7 million customers as of December 31, 1999. In
the fourth quarter of 1999, Sprint PCS added more than one million new
subscribers, representing the largest single quarter of customer growth ever
recorded by a wireless provider in the United States. During 1999, Sprint PCS
added more than 3.1 million new subscribers. Sprint PCS, together with its
affiliates, operates the largest all-digital, all-PCS nationwide wireless
network in the United States, already serving more than 330 metropolitan markets
including more than 4,000 cities and communities across the country. Sprint PCS
has licensed PCS coverage of more than 270 million people in all 50 states,
Puerto Rico and the U.S. Virgin Islands. However, Sprint PCS does not currently
offer PCS services in every state in the United States. The graph below
illustrates Sprint PCS' subscriber growth from the beginning of 1997 through the
end of 1999. These statistics may not reflect Sprint PCS' future subscriber
growth nor our subscriber growth.
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SPRINT PCS HISTORICAL SUBSCRIBERS
(IN THOUSANDS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Q1 97 192
<S> <C>
Q2 97 347
Q3 97 570
Q4 97 887
Q1 98 1,114
Q2 98 1,365
Q3 98 1,751
Q4 98 2,587
Q1 99 3,350
Q2 99 3,967
Q3 99 4,687
Q4 99 5,723
</TABLE>
Sprint PCS currently provides nationwide service through:
- operation of its own digital network;
- strategic affiliations with other companies, such as us, primarily in and
around smaller metropolitan areas;
- roaming on analog cellular networks of other providers using
dual-band/dual-mode handsets; and
- roaming on digital PCS networks of other CDMA-based providers.
Sprint PCS has adopted a strategy to rapidly extend its 100% digital, 100%
PCS network by entering into agreements with independent wireless companies,
such as UbiquiTel, to construct and manage Sprint PCS markets and market Sprint
PCS services. Through these affiliations, Sprint PCS services will be available
in key cities contiguous to current and future Sprint PCS markets. Sprint PCS'
affiliates are an integral part of its plan to provide nationwide seamless
coverage.
OUR MARKETS
Our network will cover portions of California, Nevada, Washington, Idaho,
Montana, Wyoming, Utah, Oregon, Arizona, Indiana, Kentucky, Illinois and
Tennessee for a combined population of approximately 7.7 million residents.
These markets are attractive for the following reasons:
- FEWER COMPETITORS/UNTAPPED MARKET PENETRATION. Because the national
wireless providers have focused on the largest metropolitan markets, we
believe that our markets have lower wireless penetration rates as compared
to the national average of 32% as of year end 1999. As of December 31,
1999, three or fewer wireless service providers, other than us, operated
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in areas that comprise over 75% of the residents in our markets. By
comparison, less than 10% of the resident population in the 50 most
populated markets in the United States are served by four or fewer
wireless service providers. We further believe that offering a high
quality, all digital nationwide product in our markets will allow us to
achieve greater market penetration with less pricing competition than in
larger markets. However, we can provide no assurance that other national
wireless providers will not choose to focus on our markets in the future.
- CONTIGUOUS TO MAJOR EXISTING SPRINT PCS MARKETS. Our markets are
contiguous to major Sprint PCS markets with a combined license population
of over 22 million. Some of the major contiguous markets include San
Francisco and Sacramento, California; Seattle and Tacoma, Washington; Salt
Lake City and Provo, Utah; Las Vegas, Nevada; Indianapolis, Indiana; St.
Louis, Missouri; Nashville, Tennessee; Louisville, Kentucky; and
Cincinnati and Dayton, Ohio. We believe that having a large established
base of Sprint PCS customers in close proximity to our markets will
facilitate brand awareness, create an extended seamless coverage area and
generate Sprint PCS travel revenue as existing Sprint PCS customers travel
into our markets.
- IMPORTANT TRANSPORTATION CORRIDORS. Our markets include the most important
and, in some cases, the only transportation corridors that link the
population centers within a particular market. Our network will cover over
2,200 highway miles, including major interstates such as I-80 and I-90.
Over 45 million vehicle miles are traveled daily on the major highway
miles we expect to cover in our markets. We anticipate that our coverage
of important transportation corridors will further increase our travel and
roaming revenue. However, the lower population densities along these
corridors results in a higher build-out cost per resident than other areas
of our markets.
- POPULAR VACATION AND TOURIST DESTINATIONS. Our markets contain popular
vacation and tourist destinations, including various national parks and
ski resorts such as Yellowstone National Park and Glacier National Park,
and Lake Tahoe and Sun Valley resorts with over 20 million visitors per
year. As a result, we anticipate that we will receive significant Sprint
PCS travel and roaming revenue from tourists.
- FAVORABLE DEMOGRAPHICS. Our markets have attractive demographic
characteristics for wireless services, including an overall average
population growth rate that is over 60% higher than the national average.
In addition, there are at least 20 colleges and universities located
within our markets, including 12 schools with student populations greater
than 10,000 each such as Utah State University (Logan), Indiana University
(Bloomington) and the University of Nevada.
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RENO/TAHOE/NORTHERN CALIFORNIA
This market has a resident population of approximately 1.7 million. Limited
commercial service was launched in areas directly adjacent to Sacramento in
February 2000, and we expect to launch Reno/Lake Tahoe by the third quarter of
2000. We expect to complete the majority of the network build-out of this market
by the end of 2001 at which time we will cover approximately 72% of the resident
population in our license area. Distinguishing characteristics with respect to
this market include:
- Contiguous to major Sprint PCS markets including:
- Sacramento, San Francisco, the San Francisco Bay Area, California;
- Stockton, Fresno, and Central, California;
- Portland, Eugene and Salem, Oregon; and
- Planned coverage in Medford and Klamath Falls, Oregon.
- Licensed area includes over 750 (300 under expected coverage) highway
miles along important corridors such as I-5 and I-80.
- Over 13.3 million vehicle miles are traveled daily on the major highways
within our expected coverage area.
- Over 6.0 million tourists visit the Reno/Lake Tahoe area annually.
- Largest concentration of ski areas in North America (15 alpine and 13
cross-country ski areas), including Heavenly Valley and Squaw Valley.
- Several Lake Tahoe casino, recreation and resort destinations.
- Two major universities in the coverage area with a combined student
population of over 25,000 including:
- University of Nevada, Reno (12,000 students); and
- California State University, Chico (13,470 students).
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SPOKANE/MONTANA
This market includes a total resident population of approximately
1.8 million residents. In April 2000, we completed our acquisition of the
Spokane market from Sprint PCS for $35.0 million. This market is operational in
the greater Spokane, Washington and Coeur d' Alene, Idaho metropolitan areas. We
are implementing plans to rapidly expand the Spokane coverage area to include
the important communities of Pullman, Washington, Moscow and Lewiston, Idaho and
the I-90 corridor west towards Seattle by the first quarter of 2001. We will
complete our network build-out requirements by selectively expanding our
coverage to include markets in Montana and Wyoming. At the completion of our
build-out in this market, we expect to cover approximately 65% of the resident
population in our licensed area. Distinguishing characteristics with respect to
this market include:
- Contiguous to major Sprint PCS markets including:
- Seattle, Tacoma and Olympia, Washington;
- Portland, Oregon; and
- Planned coverage in the eastern Washington cities of Yakima, Tri-Cities
(Kennewick, Pasco and Richland) and Walla Walla.
- Licensed area includes over 1,400 (350 under expected coverage) highway
miles along important corridors such as I-90 and I-15.
- Over 6.1 million vehicle miles are traveled daily on the major highways
within our expected coverage area.
- Approximately 5.9 million tourists visit the national parks and resorts in
this market.
- Popular ski and summer resort areas include Big Sky, Big Mountain and
Schweitzer.
- Home to the National Parks of Yellowstone and Glacier.
- Four major universities in the coverage area with a combined student
population of over 52,000 including:
- University of Montana, Missoula (12,200 students);
- Montana State, Bozeman (11,750 students);
- Washington State University, Pullman (16,700 students); and
- University of Idaho, Moscow (12,000 students).
SOUTHERN IDAHO/UTAH/NEVADA
This market includes a total resident population of approximately
1.5 million residents. We expect to launch commercial services in the Logan and
Brigham City, Utah market by the first quarter of 2001 and in the Boise, Idaho
and St. George, Utah market by the second quarter of 2001. We expect to complete
the majority of the build-out of this market by the end of 2001. Upon completion
of our build-out in this market, we expect to cover approximately 72% of the
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resident population in our licensed area. Distinguishing characteristics with
respect to this market include:
- Contiguous to major Sprint PCS markets including:
- Salt Lake City, Ogden and Provo, Utah; and
- Las Vegas, Nevada.
- Licensed area includes over 1,070 (790 under expected coverage) highway
miles along important corridors such as I-15 and I-84.
- Approximately 14.0 million vehicle miles are traveled daily on the major
highways within our expected coverage area.
- Approximately 8.5 million tourists visit the national parks and resorts in
this market.
- Home to national parks such as Zion, Bryce and Grand Teton.
- Popular ski areas include Sun Valley, Jackson Hole and Snowbasin (2002
Winter Olympics site).
- Rapidly growing metropolitan area of Boise, home to many high tech
employers such as Micron and Hewlett Packard.
- Three major universities in the coverage area with a combined student
population of over 42,000 including:
- Utah State University, Logan (14,400 students);
- Idaho State University, Pocatello (12,700 students); and
- Boise State University, Boise (15,400 students).
SOUTHERN INDIANA/KENTUCKY
This market includes a total resident population of approximately
2.7 million residents. We expect to launch commercial services in the
Evansville, Terre Haute and Bloomington, Indiana markets by the second quarter
of 2001. Over the next two quarters, we expect to continue the expansion of our
coverage area along major highways and thoroughfares throughout our license
areas in southern Indiana and Kentucky. We expect to complete the majority of
the build-out of this market by the end of 2001. Upon completion of our
build-out in this market, we expect to cover approximately 50% of the resident
population in our licensed area. Distinguishing characteristics with respect to
this market include:
- Contiguous to major Sprint PCS markets including:
- Indianapolis, Indiana;
- Dayton, Columbus and Cincinnati, Ohio;
- Louisville and Lexington, Kentucky;
- Nashville, Tennessee; and
- St. Louis, Missouri.
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- Licensed area includes over 850 (840 under expected coverage) highway
miles along important corridors such as I-70, I-64, I-24, I-65 and I-74 as
well as state routes 150, 41, 50 and 60.
- Over 12.3 million vehicle miles are traveled daily on the major highways
within our expected coverage area.
- Strong industrial economy with major employers including General Electric,
General Motors, International Paper, Toyota Motor, ALCOA, Whirlpool and AK
Steel.
- Three major universities in the coverage area with a combined student
population of over 61,000 including:
- Indiana University, Bloomington (35,600 students);
- Indiana State University, Terre Haute (11,000 students); and
- Western Kentucky University (14,700 students).
BUSINESS STRATEGY
CAPITALIZE ON OUR AFFILIATION WITH SPRINT PCS
In all of our markets, we plan to capitalize upon the extensive benefits of
our Sprint PCS affiliation. This affiliation includes the following benefits:
EXCLUSIVE PROVIDER OF SPRINT PCS PRODUCTS AND SERVICES. We are the
exclusive provider of Sprint PCS' 100% digital, 100% PCS products and services
in our markets and we will provide these products and services exclusively under
the Sprint and Sprint PCS brand names.
STRONG BRAND RECOGNITION AND NATIONAL ADVERTISING SUPPORT. We will benefit
from the strength and the reputation of the Sprint and Sprint PCS brands. Sprint
PCS' national advertising campaigns and developed marketing programs will be
provided to us at no additional cost under our agreements with Sprint PCS. We
will offer the same strategic pricing plans, promotional campaigns and handset
and accessory promotions that we believe have made Sprint PCS the fastest
growing wireless service provider in the United States.
ESTABLISHED DISTRIBUTION CHANNELS. We will have use of all the national
distribution channels used by Sprint, including over 350 retail outlets in our
markets. These channels include:
- exclusive PCS offering in RadioShack (over 150 outlets);
- other major national third-party retailers such as Circuit City, OfficeMax
and Kmart (over 200 outlets);
- Sprint PCS' national inbound telemarketing sales force;
- Sprint PCS' national accounts sales team; and
- Sprint PCS' electronic commerce sales platform.
NATIONWIDE COVERAGE. We plan to operate our PCS network seamlessly with the
Sprint PCS national network. This will provide customers in our markets with
immediate nationwide traveling coverage using the Sprint PCS network and other
wireless networks with which Sprint PCS has
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roaming agreements. Sprint PCS, together with its affiliates, operates the
largest all-digital, all-PCS nationwide wireless network in the United States,
already serving more than 190 million residents in more than 330 metropolitan
markets. Sprint PCS has PCS licenses to serve more than 270 million people
across all 50 states, Puerto Rico and the U.S. Virgin Islands. However, Sprint
PCS does not currently offer PCS services in every state in the United States.
COST-EFFECTIVE SUPPORT SERVICES FROM SPRINT PCS. Our affiliation with
Sprint PCS provides us with the option to use Sprint PCS' established support
services, including customer activation, billing and customer care. Using this
option, we can accelerate the launch of our commercial PCS operations and reduce
our capital expenditures and operating costs compared to establishing and
operating our own systems. Sprint PCS has indicated it intends to provide these
services to us at its internal costs which reflect Sprint PCS' economies of
scale. We may elect to develop our own internal capabilities to handle these
functions or outsource them to a third party if doing so proves to be more cost
effective.
APPROVED SPRINT PCS NETWORK DESIGN. We will leverage Sprint PCS' extensive
experience with designing and implementing a digital PCS network build-out.
Sprint PCS sets our network standards, reviews our network build-out plans, and
certifies our systems before we commence operations. As a result, the risk of a
poor network design is dramatically reduced.
PURCHASING ECONOMIES OF SCALE OF A NATIONWIDE NETWORK. We will purchase our
network and subscriber equipment under Sprint PCS' vendor contracts that provide
for volume discounts. Sprint PCS' purchasing power also influences new
technology development by its vendors and provides Sprint PCS and its
affiliates, like us, with preferential access to handsets and other equipment.
SPRINT PCS LICENSES AND LONG-TERM COMMITMENT. Sprint PCS has funded the
purchase of the licenses covering our markets at a cost of approximately $90
million and will incur additional expenses for microwave clearing. As a Sprint
PCS affiliate, we did not have to fund the acquisition of the licenses thereby
reducing our start-up costs. Moreover, our affiliation with Sprint PCS is for a
50-year term, including an initial 20-year term with three 10-year automatic
renewal periods unless either party provides two years' prior notice to the
other party of its intent to terminate the agreement.
EXECUTE OPTIMAL NETWORK BUILD-OUT PLAN
We utilize a rigorous financial model to analyze every aspect of our 100%
digital, 100% PCS network build-out. Accordingly, we have targeted the more
densely populated areas within our markets for network build-out as well as
areas expected to generate significant Sprint PCS travel and other roaming
revenue such as the major transportation corridors and tourist destinations.
Through our strategic relationships, we are constructing a state-of-the-art,
high quality, all digital PCS network which includes a high density of radio
communications sites. We believe that our high quality network will allow our
system to handle more customers with fewer dropped calls and better clarity than
our competitors. By leasing radio communications sites on facilities shared with
one or more other wireless providers, we expect to rapidly deploy a cost
effective PCS network. We estimate that over 75% of our sites will be located on
shared facilities.
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UTILIZE OTHER STRATEGIC THIRD PARTY RELATIONSHIPS IN NETWORK BUILD-OUT
We have entered into other strategic relationships with various third
parties to benefit from their specialized expertise and economies of scale in
order to build-out our portion of the Sprint PCS Network more quickly and with
lower initial capital and staffing requirements than would otherwise be
possible. Specifically, we have relationships with:
- LUCENT TECHNOLOGIES. Lucent Technologies is an international equipment
supplier in the development and deployment of code division multiple
access networks. We have selected Lucent Technologies as our equipment
vendor in the Reno/Tahoe/Northern California market. We have also engaged
Lucent to perform overall program management for network development in
all of our markets. As program manager, Lucent is responsible for the
coordination, scheduling, tracking and controlling of the network
build-out, including oversight of radio communications site network
design, site acquisition, construction, radio communications site
equipment installation, integration and optimization. The term of the
agreement with Lucent is approximately 24 months. During these 24 months,
or such shorter or longer period needed to complete the build-out, we will
pay Lucent a monthly fee for each of the two program managers assigned to
us.
- LCC INTERNATIONAL. LCC International is an engineering and site
development firm specializing in the use of radio frequency design
techniques and software tools in the deployment of cellular and PCS
networks worldwide. We have engaged LCC International to provide radio
base station network design and optimization, site acquisition including
leasing, zoning, permitting and regulatory compliance, fixed network
design service and switch design and operation services in each of our
markets. The term of our agreement with LCC International is initially
five years through September 2004 and is automatically renewable for one
additional five year term, followed by additional and successive terms of
one year, unless terminated by either us or LCC International upon
providing the other party written notice at least 90 days in advance of
the conclusion of the initial or any renewal term. Either party may
terminate the agreement in the event of a material breach of the agreement
by the other party if the breaching party has not cured the breach within
30 days of receiving written notice. We pay LCC International fixed fees.
- SPECTRASITE COMMUNICATIONS. SpectraSite Communications is a
telecommunications site development and management firm. The company
designs, builds, owns, operates and maintains towers for sending and
receiving microwave, cellular, PCS, paging and specialized mobile radio
technologies for broadcast, telephone, communications and utility
companies in the United States and Canada. We recently entered into a new
master site agreement with SpectraSite Communications for its existing
towers as well as towers that it may construct for us on build-to-suit
sites that we identify from time to time under a master design and build
agreement between us. Under the master design and build agreement,
SpectraSite Communications has the right of first refusal to construct and
acquire build-to-suit sites and we are entitled to engage SpectraSite
Communications to handle any construction necessary to install our network
equipment on shared facilities that we license or sublicense from
SpectraSite Communications or any third party. The master design and build
agreement has a term of five years unless services have been performed in
markets totaling a covered population of ten million. Under the master
site agreement, we intend to license space on build-to-suit sites or
sublicense space on SpectraSite Communications'
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existing towers to house our network equipment. Each time we license or
sublicense tower space from SpectraSite Communications, we will enter into
a separate site agreement, which will have an initial term of ten years
for build-to-suit sites and five years for non-build-to-suit sites. The
initial term for each site agreement will be automatically renewable for
three additional five year terms unless SpectraSite Communications no
longer has rights to the tower space or we provide written notice to
SpectraSite Communications of our intention not to renew within 90 days of
the expiration of the then current term of the site agreement. We will be
able to terminate a site agreement during its initial term if we pay
SpectraSite Communications liquidated damages equal to the rent due for
the remainder of the initial term for non-build-to-suit sites or the
lesser of rent due for the balance of the initial term or the total
construction costs for build-to-suit sites. We will pay SpectraSite fixed
monthly rent during the initial five year term of each master site
agreement in annual installments beginning at the inception of each
agreement. During any renewal term, our base rent shall increase each year
on the anniversary date of the renewal term by an amount equal to 3% of
the base rent payable for the immediately preceding year. SpectraSite
Communications has preferential access to more than 2,400 existing towers
throughout the United States. We will evaluate the available inventory for
possible shared facilities sites for our network equipment.
IMPLEMENT EFFECTIVE OPERATING STRUCTURE WITH A FOCUS ON CUSTOMER SERVICE
Our organization and management structure is based on a decentralized, local
market-focused model. We will rely on Sprint PCS to provide the majority of our
support services, including customer activation, billing and customer care,
while focusing our resources on the management of each market rather than the
development of these ancillary services. We will place experienced management
teams at the local level with the authority to tailor operations and sales and
marketing programs to each market.
We place particular emphasis on customer service to ensure high customer
satisfaction. Our local sales force will actively seek feedback from existing
customers from the day of activation through the life of that customer in order
to respond effectively and expeditiously to that customer's needs. The Sprint
PCS customer care platform located in each of our retail stores will enable our
sales and customer care representatives to provide an additional level of
customer service by rapidly diagnosing and resolving any problems a customer may
experience with their equipment or service. By providing extensive and frequent
interaction with our customers we expect to reduce customer turnover and overall
customer acquisition costs. Our local sales and customer service associates will
be measured and compensated by their ability to provide superior customer
service.
FOCUS ON MIDSIZE AND SMALLER MARKETS
We believe that midsize and smaller markets receive a lower level of
attention from the major wireless providers as they focus on the larger markets.
As of December 31, 1999, three or fewer wireless service providers, other than
us, operated in areas that comprise over 75% of the residents in our markets. By
comparison, less than 10% of the resident population in the 50 most populated
markets in the United States are served by four or fewer wireless service
providers. We believe that an opportunity exists for us to provide a high
quality, digital product to these markets
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with less competition than frequently seen in the larger markets. We will
capitalize on this opportunity through our own internal build-out as well as
through the pursuit of future acquisitions or affiliations.
NETWORK BUILD-OUT
Pursuant to our management agreement with Sprint PCS, we have agreed upon a
minimum build-out plan which includes specific coverage and deployment schedules
for the network planned within our markets. We plan to meet or exceed the
minimum build-out requirements by focusing on achievable objectives.
Our strategy is to provide service to the population centers in our markets
and the interstates and primary roads connecting these areas. We plan to
initiate service only in areas that provide financial returns that meet
stringent internal requirements and where we are capable of providing coverage
which meets the needs of our target markets.
As described earlier, to achieve our build-out as rapidly and efficiently as
possible, we have entered into outsourcing or other relationships with Lucent
Technologies, LCC International and SpectraSite Communications.
The following table lists the location, the basic trading areas, commonly
referred to as "BTAs", megahertz of spectrum, estimated total residents and
percent coverage for each of our markets under our Sprint PCS management
agreement. The estimated total residents does not represent expected customers
but rather our total potential customers within each market. However, our
network build-out plan focuses on providing service to the residents in the most
densely populated and strategic areas of our markets which is represented by the
estimated percent coverage.
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We have commenced limited operations in the Reno/Tahoe/Northern California
market. Together with the Spokane market, we currently provide service to over
9,000 subscribers.
<TABLE>
<CAPTION>
ESTIMATED
TOTAL ESTIMATED
MEGAHERTZ RESIDENTS PERCENT
BTA NO.(1) OF SPECTRUM(2) (000'S)(3) COVERAGE(4)
LOCATION ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
RENO/TAHOE/NORTHERN CALIFORNIA
Chico-Oroville, CA............... 79 30 225
Eureka, CA....................... 134 30 148
Redding, CA...................... 371 30 284
Reno, NV......................... 372 30 584
Sacramento, CA................... 389* 30 313
Yuba City-Marysville, CA......... 485* 30 142
--- -- ----- --
Subtotal......................... 1,696 72%
SPOKANE/MONTANA
Billings, MT..................... 41 30 315
Bozeman, MT...................... 53 30 81
Butte, MT........................ 64 30 68
Great Falls, MT.................. 171 30 167
Helena, MT....................... 188 30 70
Kalispell, MT.................... 224 30 76
Lewiston-Moscow, ID.............. 250 30 127
Missoula, MT..................... 300 30 172
Spokane, WA...................... 425 30 754
--- -- ----- --
Subtotal......................... 1,830 65%
SOUTHERN IDAHO/UTAH/NEVADA
Boise-Nampa, ID.................. 50 30 562
Idaho Falls, ID.................. 202 30 218
Las Vegas, NV.................... 245* 30 22
Logan, UT........................ 258 30 104
Pocatello, ID.................... 353 30 106
Provo-Orem, UT................... 365* 30 12
St. George, UT................... 392 30 137
Salt Lake City-Ogden, UT......... 399* 30 105
Twin Falls, ID................... 451 30 164
--- -- ----- --
Subtotal......................... 1,430 72%
SOUTHERN INDIANA/KENTUCKY
Anderson, IN..................... 15* 30 44
Bloomington-Bedford, IN.......... 47 30 241
Bowling Green-Glasgow, KY........ 52 30 249
Cincinnati, OH................... 81* 10 17
Clarksville, Hopkinsville,
TN/KY.......................... 83 30 254
Columbus, IN..................... 93 30 157
Evansville, IN................... 135 30 518
Indianapolis, IN................. 204* 30 86
Louisville, KY................... 263* 30 252
Madisonville, KY................. 273 30 47
Owensboro, KY.................... 338 30 165
Paducah-Murray-Mayfield, KY...... 339 30 234
Richmond, IN..................... 373 30 105
Terre Haute, IN.................. 442* 30 246
Vincennes-Washington, IN......... 457 30 96
----- --
Subtotal......................... 2,711 50%
----- --
TOTAL.............................. 7,667 63%
===== ==
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
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(FOOTNOTES FOR PRECEDING PAGE)
------------------------
* Denotes partial portion of BTA.
(1) A basic trading area, or BTA, is a collection of counties surrounding a
metropolitan area in which there is a commercial community of interest. The
BTA number indicated in the table is assigned to that market by the Federal
Communications Commission for the purpose of issuing licenses for wireless
services.
(2) Spectrum licensed to Sprint PCS or related parties of which we have
exclusive access.
(3) Estimated total residents is based on 1990 Census data for each BTA within a
given market extrapolated through the first quarter of 2000 based on
estimated population growth rates. Estimated BTA residents may not add-up
due to rounding.
(4) Estimated percent coverage is the ratio of estimated covered residents
(based on our actual or projected network coverage in markets upon
completion of our network build-out) to estimated total residents for each
of our four markets.
More than 75% of our radio communications sites will be shared facilities on
existing structures, which will result in higher radio communications site lease
expenses. These higher lease expenses will be offset in part by certain
operating expense savings resulting from shared facilities. Shared facilities
will also substantially reduce our capital expenditures and time to market.
Wireless providers that have offered poor or spotty coverage, inferior voice
quality, unresponsive customer care or confusing billing formats suffer higher
than average customer turnover rates. Accordingly, we will only launch service
after comprehensive and reliable coverage and service can be maintained in a
particular market. In addition, we will use the Sprint PCS billing platform and
rate plans which are designed to offer simple and understandable options.
Specifically, the Sprint PCS "Free and Clear" calling plans offer bundled minute
options that include local, long distance and traveling on the entire Sprint PCS
network.
PRODUCTS AND SERVICES
We will offer established products and services throughout our markets under
the Sprint and Sprint PCS brand names. Our products and services are designed to
mirror the service offerings of Sprint PCS and to integrate with the Sprint PCS
network. The Sprint PCS product offering includes the following features:
100% DIGITAL WIRELESS NETWORK WITH NATIONWIDE SERVICE
We are part of the largest 100% digital wireless personal communications
services network in the country. Sprint PCS and its affiliates, cover more than
190 million people in more than 330 metropolitan areas across the country.
Although Sprint PCS does not currently offer PCS services in every state in the
United States, this provides an extended coverage area for our customers,
allowing access to Sprint PCS services throughout the Sprint PCS network.
Dual-band/dual-mode handsets allow roaming on wireless networks where Sprint PCS
has roaming agreements.
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SPRINT PCS WIRELESS WEB
We will support the recently announced Sprint PCS Wireless Web offer in our
portion of the Sprint PCS network. The Sprint PCS Wireless Web allows customers
with data capable handsets to connect their portable computers or personal
digital assistants to the Internet. Sprint PCS customers with data capable
handsets have the ability to receive periodic information updates such as stock
prices, sports scores and weather reports. Sprint PCS customers with web-browser
enabled handsets also have the ability to connect to and browse specially
designed text-based Internet sites on an interactive basis. Sprint PCS has
agreements with Internet providers including Yahoo!, Bloomberg.com, CNN.com,
Amazon.com, FOXSports.com, GetThere.com, AmeriTrade.com, MapQuest.com and
weather.com to provide services for the Sprint PCS Wireless Web. Sprint PCS
offers various pricing options including a fixed number of updates or a bundle
of data minutes as add-ons to existing Sprint PCS "Free and Clear" calling plans
or a bundle of minutes for a set price that can be used for either data or
voice.
ADVANCED HANDSETS
We will offer two types of handsets, a single band/single mode and a
dual-band/dual mode, with various advanced features and technology. Our code
division multiple access single-band/single-mode handsets, weighing
approximately five to seven ounces, offer up to five days of standby time and
approximately four hours of talk time. Our dual-band/dual-mode handsets allow
customers to make and receive calls on both PCS and cellular frequency bands
with the applicable digital or analog technology. These handsets allow roaming
on cellular networks where Sprint PCS digital service is not available. All
handsets are co-branded with the vendor and the Sprint and Sprint PCS brand
names and are equipped with preprogrammed features such as caller ID, call
waiting, phone books, speed dial and last number redial.
PRIVACY AND SECURITY
Sprint PCS provides voice transmissions encoded into a digital format with a
significantly lower risk of cloning and eavesdropping than on other analog or
digital based systems. Sprint PCS customers using dual-band/dual-mode handsets
in analog mode do not have the benefit of digital security.
IMPROVED VOICE QUALITY
We believe the Sprint PCS code division multiple access technology offers
significantly improved voice quality, more powerful error correction, less
susceptibility to call fading and enhanced interference rejection, all of which
results in fewer dropped calls.
CUSTOMER SERVICE
Sprint PCS provides toll free customer care services to customers based in
our markets under our Sprint PCS services agreement. Sprint PCS offers customer
care 24 hours a day, seven days a week. All Sprint PCS handsets are
preprogrammed with a speed dial feature that allows customers to easily reach
customer care at any time. In addition to these services provided through our
agreement with Sprint PCS, we will also provide local customer service at each
of our retail stores.
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SIMPLE ACTIVATION
Customers can purchase a Sprint PCS handset at a retail location and
activate their service and program the handset by calling Sprint PCS customer
care.
OTHER SERVICES
Sprint PCS' research and development lab is continuously working with
technology and equipment providers to develop new products and services. We will
work with Sprint PCS to develop and adopt complimentary service offerings to
introduce in our markets.
TRAVELING AND ROAMING
SPRINT PCS TRAVELING
Sprint PCS traveling includes both inbound Sprint PCS traveling, when a
Sprint PCS subscriber based outside of our markets uses our portion of the
Sprint PCS network, and outbound Sprint PCS traveling, when a Sprint PCS
subscriber based in our markets uses the Sprint PCS network outside of our
markets. Sprint PCS pays us a per minute fee for inbound Sprint PCS traveling.
Similarly, we pay a per minute fee to Sprint PCS for outbound Sprint PCS
traveling. Pursuant to our management agreement with Sprint PCS, Sprint PCS has
the discretion to change the per minute rate for Sprint PCS traveling fees.
Because we serve smaller markets adjacent to larger metropolitan areas, we
believe inbound Sprint PCS traveling will exceed outbound Sprint PCS traveling.
See "Risk Factors--Risks Particular to Our Relationship with Sprint PCS--We may
not receive as much Sprint PCS travel revenue as we anticipate because Sprint
PCS can change the rate we receive or fewer people may travel on our network."
NON-SPRINT PCS ROAMING
Non-Sprint PCS roaming includes both inbound non-Sprint PCS roaming, when a
non-Sprint PCS subscriber uses our portion of the Sprint PCS network, and
outbound non-Sprint PCS roaming, when a Sprint PCS subscriber based in our
markets uses a non-Sprint PCS network. Pursuant to roaming agreements between
Sprint PCS and other wireless service providers, when another wireless service
provider's subscriber uses our portion of the Sprint PCS network, we earn
inbound non-Sprint PCS roaming revenue. These wireless service providers must
pay fees for their subscribers' use of our portion of the Sprint PCS Network,
and as part of our management agreement with Sprint PCS, we are entitled to 92%
of these fees. Currently, pursuant to our services agreement with Sprint PCS,
Sprint PCS bills these wireless service providers for these fees. When another
wireless service provider provides service to one of the Sprint PCS subscribers
based in our markets, we pay outbound non-Sprint PCS roaming fees directly to
that provider. Sprint PCS, pursuant to our current services agreement with
Sprint PCS, then bills the Sprint PCS subscriber for use of that provider's
network at rates specified in his or her contract and pays us 100% of this
outbound non-Sprint PCS roaming revenue collected from that subscriber on a
monthly basis. As a result, we retain the collection risk for outbound
non-Sprint PCS roaming fees incurred by the subscribers based in our markets.
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MARKETING STRATEGY
Our marketing and sales strategy will use Sprint PCS' proven strategies and
developed national distribution channels that have helped generate the highest
incremental wireless penetration of any cellular or PCS provider in the United
States. In the fourth quarter of 1999, Sprint added approximately one million
net new subscribers, the largest single quarter of customer growth ever reported
by a wireless provider in the United States. In 1999, Sprint PCS added more than
3.1 million new wireless subscribers. These statistics may not reflect Sprint
PCS' future growth rate nor our growth rate. We plan to enhance Sprint PCS'
proven strategies with strategies tailored to our specific markets.
BRAND EQUITY
We will feature exclusively and prominently the nationally recognized Sprint
and Sprint PCS brand names in our marketing effort. From the customers' point of
view, they will use our PCS network and the Sprint PCS national network
seamlessly as a unified national network.
PRICING
We will use the Sprint PCS pricing strategy to offer customers in our
markets simple, easy to understand service plans. Sprint PCS' consumer pricing
plans are typically structured with competitive monthly recurring charges, large
local calling areas, service features such as voicemail, enhanced caller ID,
call waiting and three-way calling and competitive per-minute rates. Lower
per-minute rates relative to analog cellular providers are possible in part
because the code division multiple access system that both we and Sprint PCS
employ has greater capacity than current analog cellular systems, enabling us to
market high usage customer plans at lower prices. All of Sprint PCS' current
pricing plans:
- include minutes in any Sprint PCS market (with no traveling charges);
- are feature-rich and generally require no annual contracts or hidden
charges;
- offer a wide selection of phones to meet the needs of consumers and
businesses; and
- provide a limited-time money back guarantee on Sprint PCS phones.
In addition, Sprint PCS' national "Free and Clear" calling plans, which
offer simple, affordable plans for every consumer and business customer, include
free long distance calling from anywhere on its nationwide network.
LOCAL FOCUS
Our local focus will enable us to supplement Sprint PCS' marketing
strategies with our own strategies tailored to each of our specific markets.
This will include attracting local businesses to enhance our distribution and
drawing on our management team's experience in our markets. We will use local
radio, television and newspaper advertising to sell our products and services in
each of our markets. We intend to build a local sales force to execute our
marketing strategy and to employ a direct sales force targeted to business
sales. In addition, Sprint PCS' existing agreements with national retailers
provide us with access to over 350 retail locations in our markets.
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ADVERTISING AND PROMOTIONS
Sprint PCS promotes its products through the use of national as well as
regional television, radio, print, outdoor and other advertising campaigns. We
benefit from the national advertising at minimal costs to us. We have the right
to use any promotion or advertising materials developed by Sprint PCS and only
have to pay the incremental cost of using those materials, such as the cost of
local radio and television advertisement placements, advertisement production
and material costs and incremental printing costs. We also benefit from any
advertising or promotion of Sprint PCS products and services by third party
retailers in our markets, such as RadioShack, Circuit City, OfficeMax and Best
Buy. We must pay the cost of specialized Sprint PCS print advertising by third
party retailers. Sprint PCS also runs numerous promotional campaigns that
provide customers with benefits such as additional features at the same rate or
free minutes of use for limited time periods. We will offer these promotional
campaigns to potential customers in our markets.
SPONSORSHIPS
Sprint PCS is a sponsor of numerous selective, broad-based national,
regional and local events. These sponsorships provide Sprint PCS with brand name
and product recognition in high profile events, provide a forum for sales and
promotional events and enhance our promotional efforts in our markets.
BUNDLING OF SERVICES
We intend to take advantage of the complete array of communications services
offered by bundling Sprint PCS services with other Sprint products, such as long
distance and Internet access.
SALES AND DISTRIBUTION
Our sales and distribution plan mirrors Sprint PCS' proven multiple channel
sales and distribution plan. Key elements of our sales and distribution plan
consist of the following:
SPRINT PCS RETAIL STORES
We plan to operate company-owned Sprint PCS branded retail stores throughout
our markets. These stores will be located in major traffic centers within our
markets, providing us with a strong local presence and a high degree of
visibility. We will train our sales representatives to be informed and
persuasive advocates for Sprint PCS' services. Following the Sprint PCS model,
these stores will be designed to facilitate retail sales, activation, bill
collection and customer service. We plan to open approximately 20 new stores by
the end of 2001 when we are commercially active in all our markets and continue
adding stores as market conditions require.
SPRINT STORE WITHIN A RADIOSHACK STORE
Sprint has an exclusive arrangement with RadioShack to install a "store
within a store," making Sprint PCS the exclusive brand of PCS sold through
RadioShack stores. RadioShack currently has over 150 stores in our markets.
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OTHER NATIONAL THIRD PARTY RETAIL STORES
In addition to RadioShack, we will benefit from the distribution agreements
established by Sprint PCS with other national retailers which currently include
Kmart, Staples, Circuit City, OfficeMax, Montgomery Ward, Office Depot, Ritz
Camera, Target and Heileg-Meyers. These retailers currently have over 200 retail
stores in our markets.
NATIONAL ACCOUNTS AND DIRECT SELLING
We will participate in Sprint PCS' national accounts program. Sprint PCS has
a national accounts team which focuses on the corporate headquarters of Fortune
1000 companies. Once a representative reaches an agreement with the corporate
headquarters, we service the offices of that corporation located in our markets.
Our direct sales force will target the employees of these corporations in our
markets and cultivate other local business clients.
We will be required to submit monthly reports to Sprint PCS that track sales
to these accounts. Sprint PCS determines how revenue unit credit is attributed
to national accounts in our markets.
We must follow an activation and fulfillment process for our national
accounts that are established by Sprint PCS, which includes procedures for
transmitting, activating and filling orders. These procedures also address:
- administrative requirements,
- transfer of services among Sprint PCS markets,
- equipment return policies,
- customer proposal support, and
- credit policies.
Sprint PCS has established specific roles and responsibilities for the
national accounts program. These roles and responsibilities set forth how
compensation is determined for national sales and area sales, specific
strategies for closing sales and account management. Sprint PCS also establishes
criteria for determining national sales and area sales based on dollar revenues
and metropolitan areas in the defined area.
INBOUND TELEMARKETING
Sprint PCS will provide inbound telemarketing sales when customers call from
our markets. As the exclusive provider of Sprint PCS products and services in
our market, we will use the national Sprint 1-800-480-4PCS number campaigns that
generate call-in leads. These leads are then handled by Sprint PCS' inbound
telemarketing group.
ELECTRONIC COMMERCE
Sprint PCS launched an Internet site in December 1998 which contains
information on Sprint PCS products and services. A visitor to Sprint PCS'
Internet site can order and pay for a handset and select a rate plan. Customers
visiting the site can review the status of their account, including
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the number of minutes used in the current billing cycle. Customers in our
markets who purchase products and services over the Sprint PCS Internet site
will be customers of our PCS network.
TECHNOLOGY
GENERAL
In the commercial mobile wireless communication industry there are two
principal services licensed by the Federal Communications Commission for
transmitting two-way, real time voice and data signals: "cellular" and wireless
"personal communications services." In addition, enhanced specialized mobile
radio service, a relatively new but not yet widely used technology, also allows
for interconnected two-way real time voice and data services. The Federal
Communications Commission licenses these services on a geographic basis, using
distinct radio spectrum bands. Cellular service, which uses a portion of the 800
MHz spectrum, was the original form of widely-used commercial mobile wireless
voice communications. Cellular systems were originally analog-based, but over
the last several years cellular operators have been providing digital service,
usually as a complement to analog service in most of the major metropolitan
markets. In 1994, the Federal Communications Commission allocated the
1850 - 1990 MHz band for wireless high capacity, commonly referred to as
broadband, personal communications services to be provided utilizing digital
technology.
Both analog and digital mobile wireless communications systems, whether
wireless broadband personal communications services or cellular service, are
divided into multiple geographic coverage areas, known as "cells." In both
wireless personal communications services and cellular systems, each cell
contains a transmitter, a receiver and signaling equipment, known as the radio
communications site. The radio communications site is connected by microwave or
traditional telephone lines to a switch that uses computers to control the
operation of the cellular or digital wireless personal communications services
system. The switch:
- controls the transfer of calls from radio communications site to radio
communications site as a subscriber's handset travels;
- coordinates calls to and from handsets;
- allocates calls among the radio communications sites within the system;
and
- connects calls to the local wireline telephone system or to a long
distance carrier.
Wireless communications providers establish interconnection agreements with
local telephone companies and long distance telephone companies, thereby
integrating their system with the existing communications system. Because the
signal strength of a transmission between a handset and a radio communications
site declines as the handset moves away from the radio communications site, the
switching office and the radio communications site monitor the signal strength
of calls in progress. When the signal strength of a call declines to a
predetermined level, the switching office may "hand off" the call to another
radio communications site where the signal strength is stronger.
Digital wireless broadband personal communications services differ from
traditional analog cellular service principally in that digital wireless
broadband personal communications services systems use frequencies in a higher
spectrum band and employ advanced digital technology.
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Analog-based systems send signals in which the transmitted signal resembles the
input signal, the caller's voice. Digital systems convert voice or data signals
into a stream of digits that permit a single radio channel to carry multiple
simultaneous transmissions. Digital systems also achieve greater frequency
re-use than analog systems resulting in greater capacity than analog systems.
This enhanced capacity, along with enhancements in digital protocols, allows
digital-based wireless technologies, whether using wireless broadband personal
communications services or cellular service frequencies, to provide greater call
privacy and stronger data transmission, such as facsimile, electronic mail and
connecting laptop computers with computer/data networks. Moreover, digital
technology also permits the provision of enhanced services such as caller ID.
Digital wireless signal transmission is accomplished through the use of
various forms of frequency management technology or "air interface protocols."
The Federal Communications Commission has not mandated a universal air interface
protocol for wireless personal communications services systems. Digital wireless
personal communications systems operate under one of three principal air
interface protocols, code division multiple access, commonly referred to as
CDMA, time division multiple access, commonly referred to as TDMA, or global
system for mobile communications, a form of time division multiple access
commonly referred to as GSM. Each of these three digital technologies is
incompatible with the other two. Thus, for example, a subscriber of a system
that utilizes code division multiple access technology is unable to use his or
her code division multiple access handset when traveling in an area not served
by code division multiple access-based wireless personal communications services
operators, unless the customer carries a dual-band/dual-mode handset that
permits the customer to default to an analog cellular system in that area. The
same issue exists in the case of users of time division multiple access or
global system for mobile communications systems. Many of the digital wireless
personal communications services operators now have dual-mode or tri-mode
handsets available to their customers. Because not all areas of the country are
served by each of the three digital modes, these handsets will remain necessary
for segments of the subscriber base.
CODE DIVISION MULTIPLE ACCESS TECHNOLOGY
Sprint PCS' national network and its affiliates' networks all use digital
code division multiple access technology. We believe that code division multiple
access provides important system performance benefits such as:
GREATER CAPACITY
We believe, based on studies by code division multiple access manufacturers,
that code division multiple access systems can provide system capacity that is
approximately seven to ten times greater than that of current analog technology
and approximately three times greater than time division multiple access and
global system for mobile communications systems.
PRIVACY AND SECURITY
One of the benefits of code division multiple access technology is that it
combines a constantly changing coding scheme with a low power signal to enhance
call security and privacy.
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SOFT HAND-OFF
Code division multiple access systems transfer calls throughout the code
division multiple access network using a technique referred to as a soft
hand-off, which connects a mobile customer's call with a new radio
communications site while maintaining a connection with the radio communications
site currently in use. Code division multiple access networks monitor the
quality of the transmission received by multiple radio communications sites
simultaneously to select a better transmission path and to ensure that the
network does not disconnect the call in one cell unless replaced by a stronger
signal from another radio communications site. Analog, time division multiple
access and global system for mobile communications networks use a "hard
hand-off" and disconnect the call from the current radio communications site as
it connects with a new one without any simultaneous connection to both radio
communications sites.
SIMPLIFIED FREQUENCY PLANNING
Frequency planning is the process used to analyze and test alternative
patterns of frequency use within a wireless network to minimize interference and
maximize capacity. Unlike time division multiple access and global system for
mobile communications based systems, code division multiple access based systems
can reuse the same subset of allocated frequencies in every cell, substantially
reducing the need for costly frequency reuse patterning and constant frequency
plan management.
LONGER BATTERY LIFE
Due to their greater efficiency in power consumption, code division multiple
access handsets can provide longer standby time and more talk time availability
when used in the digital mode than handsets using alternative digital or analog
technologies.
While code division multiple access has the inherent benefits discussed
above, time division multiple access networks are generally less expensive when
overlaying existing analog systems since the time division multiple access
spectrum usage is more compatible with analog spectrum planning. In addition,
global system for mobile communications technology allows multi-vendor equipment
to be used in the same network to a larger extent than code division multiple
access platforms. This, along with the fact that the global system for mobile
communications technology is currently more widely used throughout the world
than code division multiple access, provides economies of scale for handset and
equipment purchases. A standards process is also underway which will allow
wireless handsets to support analog, time division multiple access and global
system for mobile communications technologies in a single unit. Currently, there
are no plans to have code division multiple access handsets that support either
the time division multiple access or global system for mobile communications
technologies.
COMPETITION
We will compete throughout our markets with both incumbent cellular and new
PCS providers. The cellular providers in our markets serve different geographic
segments, with AirTouch (recently acquired by Vodafone) and AT&T Wireless
Services covering our three western regional markets, and GTE and BellSouth
servicing the midwestern market of Southern Indiana/ Kentucky.
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Competition from PCS providers is significantly more fragmented, with a
number of different operators competing with incompatible air-interface
technologies. In the Reno/Tahoe/Northern California market, Pacific Bell
Wireless is the principle PCS competitor operating with GSM air-interface
technology. In the metropolitan area of Spokane, our network competes with the
GSM operator VoiceStream and the CDMA operator GTE. In Montana, regional
operators Three River Wireless and Black Foot compete with small CDMA networks.
PCS competitors in the Southern Idaho/Utah market consist primarily of the GSM
operator VoiceStream with a small start-up CDMA carrier South Central
Communications operating in St. George and southern Utah. In the Southern
Indiana/Kentucky market, CDMA operator Ameritech and GSM operators OmniPoint
(recently acquired by VoiceStream) and PowerTel compete for different markets.
We also face competition from resellers in each of our markets, which
provide wireless services to customers but do not hold Federal Communications
Commission licenses or own facilities. Instead, the resellers buy blocks of
wireless telephone numbers and capacity from a licensed carrier and resell
services through their own distribution network to the public. The Federal
Communications Commission currently requires all cellular and wireless personal
communications services licensees to permit resale of carrier services to a
reseller.
In addition, we compete with existing communications technologies such as
paging, enhanced specialized mobile radio service dispatch and conventional
telephone companies in our markets. Potential users of wireless personal
communications services systems may find their communications needs satisfied by
other current and developing technologies. One or two-way paging or beeper
services that feature voice messaging and data display as well as tone-only
service may be adequate for potential customers who do not need to speak to the
caller.
In the future, we expect to face increased competition from entities
providing similar services using the same, similar or other communications
technologies, including satellite-based telecommunications and wireless cable
systems and other traditional telephone networks. While some of these
technologies and services are currently operational, others are being developed
or may be developed in the future.
Many of our competitors have significantly greater financial and technical
resources and subscriber bases than we do. Some of our competitors also have
well established infrastructures, marketing programs and brand names. In
addition, some of our competitors may be able to offer regional coverage in
areas not served by the Sprint PCS network, or, because of their calling volumes
or relationships with other wireless providers, may be able to offer regional
roaming rates that are lower than those we will offer. Wireless personal
communications services operators will likely compete with us in providing some
or all of the services available through the Sprint PCS network and may provide
services that we do not. Additionally, we expect that existing cellular
providers will continue to upgrade their systems to provide digital wireless
communication services competitive with Sprint PCS. Recently, there has been a
trend in the wireless communications industry towards consolidation of wireless
service providers through joint ventures, mergers and acquisitions. We expect
this consolidation to lead to larger competitors over time. These larger
competitors may have substantial resources or may be able to offer a variety of
services to a large customer base.
Over the past several years the Federal Communications Commission has
auctioned, and will continue to auction, large amounts of wireless spectrum that
could be used to compete with Sprint
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PCS services. Indeed, the Federal Communications Commission has recently
reclaimed certain 700 MHz band spectrum previously allocated for UHF television
broadcast use and has scheduled an auction of licenses for traditional telephone
network systems in large geographic areas for later this year. Based upon
increased competition, we anticipate that market prices for two-way wireless
services generally will decline in the future. We will compete to attract and
retain customers principally on the basis of:
- the strength of the Sprint and Sprint PCS brand names, services and
features;
- the national presence of Sprint PCS;
- the location of our markets;
- our network coverage and reliability;
- customer care; and
- pricing.
Our ability to compete successfully will also depend, in part, on our
ability to anticipate and respond to various competitive factors affecting the
industry, including:
- new services and technologies that may be introduced;
- changes in consumer preferences;
- demographic trends;
- economic conditions; and
- discount pricing strategies by competitors.
INTELLECTUAL PROPERTY
The Sprint diamond design logo is a service mark registered with the United
States Patent and Trademark Office. The service mark is owned by Sprint. We will
use the Sprint and Sprint PCS brand names, the Sprint diamond design logo and
other service marks of Sprint in connection with marketing and providing
wireless services within our markets. Under the terms of the trademark and
service mark license agreements with Sprint and Sprint PCS, we do not pay a
royalty fee for the use of the Sprint and Sprint PCS brand names and Sprint
service marks.
Except in instances that are noncompetitive and other than in connection
with the national distribution agreements, Sprint PCS has agreed not to grant to
any other person a right or license to use the licensed marks in our markets. In
all other instances, Sprint PCS reserves the right to use the licensed marks in
providing its services within or without our markets.
The trademark license agreements contain numerous restrictions with respect
to the use and modification of any of the licensed marks. See "The Sprint PCS
Agreements--The Trademark and Service Mark License Agreements" for more
information on this topic.
EMPLOYEES
As of May 15, 2000, we employed 48 full-time employees. None of our
employees are represented by a labor union. We believe that our relations with
our employees are good.
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PROPERTIES
Our headquarters are located in Bala Cynwyd, Pennsylvania and we lease space
in a number of locations, primarily for our base stations and switching centers.
As of May 15, 2000, our material leased properties were as listed below:
<TABLE>
<CAPTION>
PURPOSE LOCATION SQUARE FEET LEASE TERM
------- -------- ----------- ----------
<S> <C> <C> <C>
Office Space lease 1 Bala Plaza, Suite 402 6,000 10 years
Bala Cynwyd, Pennsylvania
Switch lease 5355 Capital Court 5,760 10 years
Unit Number 102
Reno, Nevada
</TABLE>
LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings that we believe would,
if adversely determined, individually or in the aggregate, have a material
adverse effect on our financial condition or results of operations.
ENVIRONMENTAL COMPLIANCE
We anticipate that our environmental compliance expenditures will primarily
result from the operation of standby power generators for our telecommunications
equipment and compliance with various environmental rules during network
build-out and operations. The expenditures are expected to arise in connection
with standards compliance or permits which are usually related to generators,
batteries or fuel storage. Our environmental compliance expenditures are not
expected to be material to our operations in the future.
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THE SPRINT PCS AGREEMENTS
The following is a summary of the material terms and provisions of the
Sprint PCS agreements and the consent and agreement modifying the Sprint PCS
management agreement. We have filed the Sprint PCS agreements and the consent
and agreement as exhibits to the registration statement of which this prospectus
is a part and urge you to review them carefully.
OVERVIEW OF SPRINT PCS RELATIONSHIP AND AGREEMENTS
Under long-term agreements with Sprint PCS, we will exclusively market PCS
services under the Sprint and Sprint PCS brand names in our markets. Sprint PCS
owns the spectrum licenses and we are granted use of these licenses through our
agreements with Sprint PCS. The agreements with Sprint PCS require us to
interface with the Sprint PCS national wireless network by building our PCS
network to operate on the PCS frequencies licensed to Sprint PCS. The Sprint PCS
agreements also give us access to Sprint PCS' equipment discounts, travel
revenue from Sprint PCS customers traveling into our markets, and various other
support services. Our relationship and agreements with Sprint PCS provide
strategic advantages, including avoiding the need to fund up-front spectrum
acquisition costs and the costs of establishing billing and other customer
services infrastructure. The management agreement has an initial term of
20 years and will automatically renew for three additional successive 10-year
terms for a total term of 50 years, unless we or Sprint PCS provide the other
with two years' prior written notice to terminate the agreements or unless we
are in material default of our obligations under the agreements.
We have four major agreements with Sprint PCS:
- the management agreement;
- the services agreement;
- the trademark and service mark license agreement with Sprint; and
- the trademark and service mark license agreement with Sprint PCS.
In addition, Sprint PCS has entered into a consent and agreement that
modifies our management agreement for the benefit of Paribas, the lender under
UbiquiTel Operating Company's $250.0 million senior credit facility. This
consent replaced an existing consent and agreement between the parties that had
modified our management agreement in substantially the same manner for the
benefit of Paribas under UbiquiTel Operating Company's previous $25.0 million
credit facility.
THE MANAGEMENT AGREEMENT
Under our management agreement with Sprint PCS, we have agreed to:
- construct and manage a network in our markets in compliance with Sprint
PCS' PCS licenses and the terms of the management agreement;
- share with Sprint the costs associated with its relocation of interfering
microwave sources in our markets;
- distribute during the term of the management agreement Sprint PCS products
and services;
- use Sprint PCS' and our own distribution channels in our markets;
- conduct advertising and promotion activities in our markets; and
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- manage that portion of Sprint PCS' customer base assigned to our markets.
Sprint PCS will supervise our PCS network operations and has the right to
unconditional access to our PCS network.
EXCLUSIVITY. We are designated as the only person or entity that can manage
or operate a PCS network for Sprint PCS in our markets. Sprint PCS is prohibited
from owning, operating, building or managing another wireless mobility
communications network in our markets while our management agreement is in place
and no event has occurred that would permit the agreement to terminate. Sprint
PCS is permitted under our agreement to make national sales to companies in our
markets and, as required by the Federal Communications Commission, to permit
resale of the Sprint PCS products and services in our markets. If Sprint PCS
decides to expand the geographic size of our build-out, Sprint PCS must provide
us with written notice of the proposed expansion. We have 90 days to determine
whether we will build out the proposed area. If we do not exercise this right,
Sprint PCS can build out the markets or permit another third party to do so.
NETWORK BUILD-OUT. The management agreement specifies the terms of the
Sprint PCS affiliation, including the required network build-out plan. We have
agreed on a minimum build-out plan which includes specific coverage and
deployment schedules for the network planned within our service area as depicted
in the table below. The aggregate coverage will result in network coverage of
approximately 55% of the population in our markets of 7.7 million by the end of
2001. We have agreed to operate our PCS network to provide for a seamless
handoff of a call initiated in our markets to a neighboring Sprint PCS network.
<TABLE>
<CAPTION>
PHASE 0 PHASE 1 PHASE 2 PHASE 3
MARKET SEPTEMBER 21, 2000 DECEMBER 31, 2000 MARCH 31, 2001 SEPTEMBER 30, 2001
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------
Reno/Tahoe/ Northern Reno, NV Yuba City/Marysville, CA Eureka, CA
California Sparks, NV Oroville, CA
Carson City, NV Chico, CA
Lake Tahoe, NV Red Bluff, CA
Redding,CA
Spokane/Montana Pullman, WA Newport,WA
Lewiston, ID Sandpoint, ID
Moscow,ID
Southern Idaho/ Logan, UT Boise, ID Twin Falls, ID
Utah/Nevada Brigham, UT Nampa, ID Pocatello, ID
Caldwell, ID Idaho Falls, ID
Mountain Home, ID Rexburg, ID
Jackson, WY St. Anthony, ID
Ketchum, ID
Cedar City, UT
St. George, UT
Mesquite, NV
Southern Indiana/ Terre Haute, IN Vincennes, IN
Kentucky Bloomington, IN Washington, IN
Bedford, IN Petersburg, IN
Evansville, IN Jasper, IN
Owensboro, KY Cannelton, IN
Rockport, IN
Bedford, IN
Mitchell, IN
New Castle, IN
Rushville, IN
Connersville, IN
Liberty, IN
Clarkesville, TN
</TABLE>
The management agreement also includes minimum build-out plan requirements
for select cities in the Spokane/Montana market, with a launch date of June 1,
2005.
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PRODUCTS AND SERVICES. The management agreement identifies the products and
services that we can offer in our markets. These services include, but are not
limited to, Sprint PCS consumer and business products and services available as
of the date of the agreement, or as modified by Sprint PCS. We are allowed to
sell wireless products and services that are not Sprint PCS' products and
services if those additional products and services do not cause distribution
channel conflicts or, in Sprint PCS' sole determination, consumer confusion with
Sprint PCS products and services. We may cross-sell services such as long
distance service, Internet access, handsets, and prepaid phone cards with
Sprint, Sprint PCS and other Sprint PCS affiliates. If we decide to sell the
same services of third parties, we must give Sprint PCS an opportunity to
provide the services on the same terms and conditions. We cannot offer
traditional telephone services based on wireless technology specifically
designed for the competitive local telephone market in areas where Sprint owns
the local telephone company unless we name the Sprint-owned local telephone
company as the exclusive distributor or Sprint PCS approves the terms and
conditions.
We will participate in the Sprint PCS sales programs for national sales to
customers, and will pay the expenses and receive the compensation from national
accounts located in our markets. As a participant in these sales programs, our
responsibilities include assisting Sprint PCS' national sales team in our
markets in connection with implementing national sales programs, negotiating
customer contracts and managing customer accounts. We must use Sprint's long
distance service for calls made from within designated portions of our markets
to areas outside those designated portions and to connect our network to the
national platforms Sprint PCS uses to provide some of its services under our
services agreement. We must pay Sprint PCS the same price for this service that
Sprint PCS pays to Sprint, along with an additional administrative fee.
SERVICE PRICING, ROAMING, TRAVEL AND FEES. We must offer Sprint PCS
subscriber pricing plans designated for regional or national offerings,
including Sprint PCS' "Free and Clear" plans. We are permitted to establish our
own local price plans for Sprint PCS products and services offered only in our
markets, subject to Sprint PCS' approval. We are entitled to receive a weekly
fee from Sprint PCS equal to 92% of "collected revenues" for all obligations
under the management agreement, adjusted by the cost of customer services
provided by Sprint PCS. "Collected revenues" include revenue from Sprint PCS
subscribers based in our markets and inbound non-Sprint PCS roaming. Sprint PCS
will receive 8% of the collected revenues. Outbound non-Sprint PCS roaming
revenue, inbound and outbound Sprint PCS travel fees, proceeds from the sales of
handsets and accessories, proceeds from sales not in the ordinary course of
business, and amounts collected with respect to taxes are not considered
collected revenues. Except in the case of taxes, we will retain 100% of these
revenues. Many Sprint PCS subscribers purchase bundled pricing plans that allow
Sprint PCS traveling anywhere on the Sprint PCS network without incremental
Sprint PCS travel charges. However, we will earn Sprint PCS travel revenue for
every minute that a Sprint PCS subscriber from outside our markets enters our
markets and uses our services. We will earn revenue from Sprint PCS based on a
per minute rate established by Sprint PCS when Sprint PCS' or its affiliates'
subscribers travel on our portion of the Sprint PCS network. Similarly, we will
pay the same rate for every minute Sprint PCS subscribers who are based in our
markets use the Sprint PCS network outside our markets. The analog roaming rate
onto a non-Sprint PCS provider's network is set under Sprint PCS' third party
roaming agreements.
ADVERTISING AND PROMOTIONS. Sprint PCS is responsible for all national
advertising and promotion of the Sprint PCS products and services. We are
responsible for advertising and
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promotion in our markets. Sprint PCS' service area includes the urban markets
around our markets. Sprint PCS will pay for advertising in these markets. Given
the proximity of those markets to ours, we expect considerable spill-over from
Sprint PCS' advertising in surrounding urban markets.
PROGRAM REQUIREMENTS. We will comply with Sprint PCS' program requirements
for technical standards, travel, roaming and interservice area calls, customer
service standards, national and regional distribution and national accounts
programs. Some of these technical standards relate to network up-time, dropped
calls, blocked call attempts and call origination and termination failures. We
are required to build a network that meets minimum transport requirements
established by Sprint PCS for links between our cell sites and switches. These
requirements are measured in milliseconds. We are also required to have minimal
loss and echo return loss on our telephone lines. We must meet substantially
high network up-time percentage in excess of 95%. Also, we must meet a less than
5% dropped call rate and ratio of blocked call attempts to total call attempts
as well as a less than 12% ratio of call origination to termination failures.
Sprint PCS can adjust the program requirements at any time so long as it gives
us at least 30 days prior notice. We have the right to appeal to Sprint PCS'
management adjustments which could cause an unreasonable increase in cost to us
if the adjustment:
- causes us to incur a cost exceeding 5% of the sum of our equity plus our
outstanding long term debt, or
- causes our long-term operating expenses to increase by more than 10% on a
net present value basis.
If Sprint PCS denies our appeal, then we have 10 days after the denial to submit
the matter to arbitration. If we do not submit the matter to arbitration within
the ten-day period or comply with the program adjustment, Sprint PCS has the
termination rights described below.
We are not currently required to meet the customer service standards because
we have elected to use Sprint PCS' established support services which include
customer service. Under our services agreement with Sprint PCS, Sprint PCS may
terminate, upon nine months' advance written notice, customer service. We would
then be required to establish and operate our own customer service center to,
among other things, handle customer inquiries 24 hours a day, 365 days a year,
and activate handsets and accounts and handle billing and collections within
stringent time guidelines established by Sprint PCS, which may range from 24 to
72 hours.
NON-COMPETITION. We may not offer Sprint PCS products and services outside
our markets without the prior written approval of Sprint PCS. Within our markets
we may offer, market or promote telecommunications products and services only
under the Sprint PCS brands, our own brand, brands of related parties of ours or
other products and services approved under the management agreement, except that
no brand of a significant competitor of Sprint PCS or its related parties may be
used for those products and services. To the extent we have or obtain licenses
to provide PCS services outside our markets, we may not use the spectrum to
offer Sprint PCS products and services without prior written consent from Sprint
PCS. Additionally, if customers from our markets travel to other geographic
areas, we must route those customers' incoming and outgoing calls according to
Sprint PCS' roaming and inter-service area requirements, without regard to any
wireless networks that we or our affiliates operate.
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INABILITY TO USE NON-SPRINT PCS BRAND. We may not market, promote,
advertise, distribute, lease or sell any of the Sprint PCS products and services
on a non-branded, "private label" basis or under any brand, trademark or trade
name other than the Sprint PCS brand, except for sales to resellers or as
otherwise permitted under the trademark and service mark license agreements.
CHANGE OF CONTROL. Sprint PCS must consent to a change of control of us,
but this consent cannot be unreasonably withheld.
ASSIGNMENT. We cannot assign the Sprint PCS agreements to any person
without the prior consent of Sprint PCS, except that we can assign the
agreements to any affiliate of ours that is not a significant competitor of
Sprint PCS in the telecommunications business.
RIGHTS OF FIRST REFUSAL. Sprint PCS has rights of first refusal to buy our
assets, without further stockholder approval, upon a proposed sale of all or
substantially all of our assets that are used in connection with the operation
or management of the Sprint PCS network in our markets.
TERMINATION OF MANAGEMENT AGREEMENT. The management agreement can be
terminated as a result of:
- termination of Sprint PCS' PCS licenses;
- an uncured breach under the management agreement;
- bankruptcy of a party to the management agreement;
- the management agreement not complying with any applicable law in any
material respect;
- the termination of either of the trademark and service mark license
agreements; or
- our failure to obtain the financing necessary for the build-out of our PCS
network and for our working capital needs.
However, Sprint PCS' rights of termination have been modified by the consent
and agreement and are discussed more particularly under "Consent and Agreement."
The termination or non-renewal of the management agreement triggers certain of
our rights and those of Sprint PCS. The right of either party to require the
other to purchase or sell the operating assets, as discussed below, may not be
exercised, except in limited circumstances in the case of Sprint PCS, until
October 15, 2000.
TRANSFER OF SPRINT PCS NETWORK. Sprint PCS can sell, transfer or assign its
wireless personal communications services network to a third party if the third
party agrees to be bound by the terms of the Sprint PCS agreements.
RIGHTS ON TERMINATION. If we have the right to terminate the management
agreement because of an event of termination caused by Sprint PCS, generally we
may:
- require Sprint PCS to purchase all of our operating assets used in
connection with our PCS network for an amount equal to 80% of our Entire
Business Value (as defined in the management agreement);
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- if Sprint PCS is the licensee for 20 MHz or more of the spectrum on the
date of the management agreement, require Sprint PCS to assign to us,
subject to governmental approval, up to 10 MHz of licensed spectrum for an
amount equal to the greater of:
- the original cost to Sprint PCS of the license plus any microwave
relocation costs paid by Sprint PCS; or
- 9% of our Entire Business Value; or
- sue Sprint PCS for damages or submit the matter to arbitration and
thereby not terminate the management agreement.
If Sprint PCS has the right to terminate the management agreement because of
an event of termination caused by us, generally Sprint PCS may:
- require us, without further stockholder approval, to sell our operating
assets to Sprint PCS for an amount equal to 72% of our Entire Business
Value;
- require us to purchase, subject to governmental approval, the licensed
spectrum for an amount equal to the greater of:
- the original cost to Sprint PCS of the license plus any microwave
relocation costs paid by Sprint; or
- 10% of our Entire Business Value;
- take any action as Sprint PCS deems necessary to cure our breach of the
management agreement, including assuming responsibility for, and
operating, our PCS network; or
- sue us for damages or submit the matter to arbitration and thereby not
terminate the management agreement.
RIGHTS ON NON-RENEWAL. If Sprint PCS gives us timely notice that it does not
intend to renew the management agreement, we may:
- require Sprint PCS to purchase all of our operating assets used in
connection with our PCS network for an amount equal to 80% of our Entire
Business Value; or
- if Sprint PCS is the licensee for 20 MHz or more of the spectrum on the
date of the management agreement, require Sprint PCS to assign to us,
subject to governmental approval, up to 10 MHz of licensed spectrum for an
amount equal to the greater of:
- the original cost to Sprint PCS of the license plus any microwave
relocation costs paid by Sprint PCS; or
- 10% of our Entire Business Value.
If we give Sprint PCS timely notice of non-renewal, or we both give notice
of non-renewal, or the management agreement can be terminated for failure to
comply with legal requirements or regulatory considerations, Sprint PCS may:
- purchase all of our operating assets, without further stockholder
approval, for an amount equal to 80% of our Entire Business Value; or
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- require us to purchase, subject to governmental approval, the licensed
spectrum for an amount equal to the greater of:
- the original cost to Sprint PCS of the license plus any microwave
relocation costs paid by Sprint PCS; or
- 10% of our Entire Business Value.
If the Entire Business Value is to be determined, we and Sprint PCS will
each select one independent appraiser and the two appraisers will select a third
appraiser, each of whom must be an expert in valuing wireless telecommunications
companies. The three appraisers will determine the Entire Business Value on a
going concern basis using the following guidelines:
- the Entire Business Value will be based on the price a willing buyer would
pay a willing seller for the entire on-going business;
- the appraisers will use then-current customary means of valuing a wireless
telecommunications business;
- the appraisers will value the business as it is conducted under the Sprint
and Sprint PCS brands and the Sprint PCS agreements;
- where Sprint PCS may, or is required to, purchase our operating assets the
appraisers will value the business as if we own the spectrum and
frequencies that we actually use. Where we may, or are required to,
purchase a portion of Sprint PCS' licensed spectrum, the business will be
valued as if we already own that portion of the spectrum and frequencies
that we are going to purchase; and
- the valuation will not include any value for the business not directly
related to the Sprint PCS products and services.
INSURANCE. We are required to obtain and maintain with financially
reputable insurers who are licensed to do business in all jurisdictions where
any work is performed under the management agreement and who are reasonably
acceptable to Sprint PCS, workers' compensation insurance, commercial general
liability insurance, business automobile insurance, umbrella excess liability
insurance and "all risk" property insurance.
INDEMNIFICATION. We have agreed to indemnify Sprint PCS and its directors,
employees and agents and related parties of Sprint PCS and their directors,
managers, officers, employees, agents and representatives against any and all
claims against any of the foregoing arising from our violation of any law, a
breach by us of any representation, warranty or covenant contained in the
management agreement or any other agreement between us and Sprint PCS, our
ownership of the operating assets or the actions or the failure to act of anyone
employed or hired by us in the performance of any work under this agreement,
except we will not indemnify Sprint PCS for any claims arising solely from the
negligence or willful misconduct of Sprint PCS. Sprint PCS has agreed to
indemnify us and our directors, managers, officers, employees, agents and
representatives against all claims against any of the foregoing arising from
Sprint PCS' violation of any law and from Sprint PCS' breach of any
representation, warranty or covenant contained in this agreement or any other
agreement between Sprint PCS and us, except Sprint PCS will not indemnify us for
any claims arising solely from our negligence or willful misconduct.
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THE SERVICES AGREEMENT
The services agreement outlines various support services provided by Sprint
PCS and available to us at established rates. Sprint PCS can change any or all
of the service rates one time in each 12 month period. Some of the available
services include: billing, customer care, activation, credit checks, handset
logistics, home locator record, voice mail, prepaid services, directory
assistance, operator services, roaming fees, roaming clearinghouse fees,
interconnect fees and inter-service area fees. Sprint PCS offers three packages
of available services. Each package identifies which services must be purchased
from Sprint PCS and which may be purchased from a vendor or provided in-house.
Sprint may require us to purchase certain services where necessary to comply
with legal or regulatory requirements (for example, where provision of 911
emergency service is mandatory). We have chosen to initially buy services such
as billing, customer care and activation from Sprint PCS. Sprint PCS may
contract with third parties to provide expertise and services identical or
similar to those to be made available or provided to us. We have agreed not to
use the services provided under the services agreement in connection with any
other business or outside our markets. We may discontinue use of any service
upon three months' prior written notice. We will have access to these services
during the term of our Sprint PCS management agreement unless Sprint PCS
provides us at least nine months' advance notice of its intention to terminate
any particular service.
We have agreed with Sprint PCS to indemnify each other as well as officers,
directors, employees and certain other related parties and their officers,
directors and employees for violations of law or the services agreement except
for any liabilities resulting from the indemnitee's negligence or willful
misconduct. The services agreement also provides that no party to the agreement
will be liable to the other party for special, indirect, incidental, exemplary,
consequential or punitive damages, or loss of profits arising from the
relationship of the parties or the conduct of business under, or breach of, the
services agreement except as may otherwise be required by the indemnification
provisions. The services agreement automatically terminates upon termination of
the management agreement and neither party may terminate the services agreement
for any reason other than the termination of the management agreement.
THE TRADEMARK AND SERVICE MARK LICENSE AGREEMENTS
We have non-transferable, royalty-free licenses to use the Sprint and Sprint
PCS brand names and "diamond" symbol, and several other U.S. trademarks and
service marks such as "The Clear Alternative to Cellular" and "Experience the
Clear Alternative to Cellular Today" on Sprint PCS products and services. We
believe that the Sprint and Sprint PCS brand names and symbols enjoy a very high
degree of awareness, providing us an immediate benefit in the market place. Our
use of the licensed marks is subject to our adherence to quality standards
determined by Sprint and Sprint PCS and use of the licensed marks in a manner
which would not reflect adversely on the image of quality symbolized by the
licensed marks. We have agreed to promptly notify Sprint and Sprint PCS of any
infringement of any of the licensed marks within our markets of which we become
aware and to provide assistance to Sprint and Sprint PCS in connection with
Sprint's and Sprint PCS' enforcement of their respective rights. We have agreed
with Sprint and Sprint PCS to indemnify each other for losses incurred in
connection with a material breach of the trademark license agreements. In
addition, we have agreed to indemnify Sprint and Sprint PCS from any loss
suffered by reason of our use of the licensed marks or marketing, promotion,
advertisement,
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distribution, lease or sale of any Sprint or Sprint PCS products and services
other than losses arising solely out of our use of the licensed marks in
compliance with certain guidelines.
Sprint and Sprint PCS can terminate the trademark and service mark license
agreements if we file for bankruptcy, materially breach the agreement or our
management agreement is terminated. We can terminate the trademark and service
mark license agreements upon Sprint's or Sprint PCS' abandonment of the licensed
marks or if Sprint or Sprint PCS files for bankruptcy, or the management
agreement is terminated.
THE CONSENT AND AGREEMENT
OVERVIEW
Sprint PCS has entered into a consent and agreement that modifies our
management agreement for the benefit of Paribas, the lender under UbiquiTel
Operating Company's $250.0 million credit facility. The consent replaced an
existing consent and agreement between the parties that had modified our
management agreement in substantially the same manner for the benefit of Paribas
under UbiquiTel Operating Company's previous $25.0 million credit facility. The
consent generally provides, among other things, the following.
CONSENT TO SECURITY INTEREST AND PLEDGE OF STOCK. Sprint PCS has consented
to the grant of the following:
- a first priority security interest in all our assets including the Sprint
PCS agreements;
- a lien upon all of our assets and property including our rights under the
Sprint PCS agreements; and
- a first priority security interest in the capital stock of UbiquiTel
Operating Company.
Sprint PCS has agreed to acknowledge the grant of these security interests
and to waive its right or the right of any of its affiliates to challenge or
contest the validity of the interests.
AGREEMENT NOT TO TERMINATE SPRINT PCS AGREEMENTS UNTIL DEBT OBLIGATIONS ARE
REPAID. Sprint PCS has agreed not to exercise its rights or remedies under the
Sprint PCS agreements, except its right to cure some defaults, and including its
right to terminate the agreements and withhold payments (other than rights of
setoff) until UbiquiTel Operating Company's obligations under the credit
agreement with Paribas are satisfied in full.
NO COMPETITION UNTIL DEBT OBLIGATIONS ARE REPAID. Sprint PCS has agreed
that it will not permit any person other than us or a successor manager to be a
manager or operator for Sprint PCS in our markets until UbiquiTel Operating
Company's obligations under the credit facility are satisfied in full.
Similarly, Sprint PCS has agreed that it will not own, operate, build or manage
another wireless mobility communications network in our markets unless it is
permitted under the management agreement or the management agreement is
terminated in accordance with the consent, and, in each case, until UbiquiTel
Operating Company's obligations under the credit facility are satisfied in full.
While the credit facility is outstanding, Sprint PCS may, however, sell PCS
services through its national accounts, permit resellers and build new
geographical areas within our markets for which we have chosen not to exercise
our rights of first refusal, all as provided in the management agreement.
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ASSIGNMENTS AND CHANGE OF CONTROL TO PARIBAS. Sprint PCS has agreed not to
apply the restrictions on assignment of the Sprint PCS agreements and changes in
control of our ownership to Paribas. The assignment and change of control
provisions in the Sprint PCS agreements will apply if the assignment or change
of control is to someone other than Paribas, or is not otherwise permitted under
the consent.
REDIRECTION OF PAYMENTS FROM SPRINT PCS TO PARIBAS. Sprint PCS has agreed
to make all payments due from Sprint PCS to UbiquiTel Operating Company under
the Sprint PCS agreements directly to Paribas if Paribas so requests and
provides Sprint PCS with notice that an event of default has occurred and is
continuing under the credit facility. Payments to Paribas would cease upon the
cure of the event of default or certain time limitations.
NOTICE OF DEFAULTS. Sprint PCS has agreed to provide to Paribas a copy of
any written notice it sends us regarding an event of termination or an event
that if not cured, or if notice is provided, would be an event of termination
under the Sprint PCS agreements. Sprint PCS also has acknowledged that notice of
an event of termination under the Sprint PCS agreements constitutes an event of
default under UbiquiTel Operating Company's credit agreement with Paribas.
Paribas has agreed to provide Sprint PCS with a copy of any written notice sent
to us or UbiquiTel Operating Company regarding an event of default or default
under the credit agreement with Paribas.
RIGHT TO CURE. Under the terms of the consent, Paribas has the right, but
not the obligation, to cure a breach by us of our management agreement with
Sprint PCS. Additionally, Sprint PCS has the right, but not the obligation, to
cure certain defaults by UbiquiTel Operating Company of its obligations under
the credit agreement with Paribas.
RIGHTS UPON DEFAULT
Besides modifying the rights and remedies available to Sprint PCS upon an
event of termination under your management agreement, the consent grants Paribas
certain rights in the event that UbiquiTel Operating Company defaults on its
obligations under the credit facility. Paribas' rights and remedies vary based
on whether:
- UbiquiTel Operating Company has defaulted on its obligations under the
credit facility but no event of termination has occurred under the
management agreement; or
- we have breached the management agreement with Sprint PCS.
The consent generally permits, without stockholder approval the appointment
of a person to run our business under the Sprint PCS agreements on an interim
basis and establishes a process for the sale of the business. The person
designated to operate our business on an interim basis is permitted to collect a
reasonable management fee. If Sprint PCS or a related party is the interim
operator, the amount of the fee shall not exceed the amount of direct expenses
of its employees to operate the business plus out-of-pocket expenses. Sprint PCS
shall collect its fee by setoff against the amounts owed to us under the Sprint
PCS agreements.
CREDIT AGREEMENT DEFAULT WITHOUT A MANAGEMENT AGREEMENT BREACH. If
UbiquiTel Operating Company defaults on its obligations to Paribas under the
credit facility, and there is no default
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under our management agreement with Sprint PCS, then Paribas may take any of the
following actions:
- allow us to continue to operate the business under the Sprint PCS
agreements;
- appoint Sprint PCS to operate the business on an interim basis; or
- appoint a person other than Sprint PCS to operate the business on an
interim basis.
APPOINTMENT BY PARIBAS OF SPRINT PCS OR A THIRD PARTY DESIGNEE TO OPERATE
BUSINESS. If Paribas appoints Sprint PCS to operate the business, Sprint PCS
must accept the appointment within 14 days or designate another person to
operate the business. Sprint PCS' designee may be an affiliate of Sprint PCS
(other than us) or another person acceptable to Paribas. Sprint PCS or its
designee must agree to operate the business for up to six months. At the end of
the six months, the period may be extended by Paribas for an additional six
months (or an additional 12 months if the aggregate population served by all of
Sprint PCS' affiliates is less than 40 million). During the initial six-month
period, Sprint PCS may not receive reimbursement for amounts expended to cure a
breach until UbiquiTel Operating Company's obligations to Paribas under the
credit facility have been satisfied in full. If the term is extended beyond the
initial six-month period, we will be required to reimburse Sprint PCS or its
designee for amounts previously expended and to be incurred as interim manager
to cure a default up to an aggregate amount that is equal to 5% of the sum of
our stockholders' equity value plus the outstanding amount of our long term
debt. Sprint PCS or its designated person is not required to incur expenses
beyond this 5% limit. At the end of the initial six-month interim term, Paribas
has the right to appoint a successor to the interim manager subject to the
requirements set forth below.
APPOINTMENT OF THIRD PARTY BY PARIBAS TO OPERATE BUSINESS. If Paribas
appoints a person other than Sprint PCS to operate the business on an interim
basis the third party must:
- agree to serve for six months unless terminated by Sprint PCS or Paribas;
- meet the requirements for a successor manager specified in the consent,
and not be challenged by Sprint PCS for failing to meet these requirements
within 20 days after Paribas provides Sprint PCS with information on the
third party; and
- agree to comply with the terms of the Sprint PCS agreements.
The third party is required to operate the Sprint PCS network in our
markets, but is not required to assume our existing liabilities. If the third
party materially breaches the Sprint PCS agreements, this breach will be treated
as an event of default under the management agreement with Sprint PCS.
MANAGEMENT AGREEMENT BREACH. If we breach the Sprint PCS agreements and
this breach causes a default under the credit agreement with Paribas, Sprint PCS
has the right to designate who will operate our business on an interim basis.
Sprint PCS has the right to:
- allow us to continue to operate the business under the Sprint PCS
agreements (if Paribas consents);
- operate our PCS business as an interim manager for up to six months; or
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- appoint a Sprint PCS affiliate or another person that is acceptable to
Paribas to operate our PCS business on an interim basis.
If Sprint PCS elects not to operate the business or designate a third party
to operate the business on an interim basis, Paribas may do so.
ELECTION OF SPRINT PCS TO SERVE OR DESIGNATE A THIRD PARTY TO OPERATE
BUSINESS. If Sprint PCS elects to operate the business on an interim basis or
designate a third party to operate the business on an interim basis, Sprint PCS
or the third party may operate the business for up to six months at the
discretion of Sprint PCS. At the end of the six months, the period may be
extended for an additional six months (or an additional 12 months if the
aggregate population served by us and all other affiliates of Sprint PCS is less
than 40 million). During the initial six month period, Sprint PCS may not
receive reimbursement for amounts expended to cure a breach until UbiquiTel
Operating Company's obligations to Paribas under the credit facility have been
satisfied in full. If the term is extended beyond the initial six month period,
we will be required to reimburse Sprint PCS or its third party designee for
amounts previously expended and to be incurred as interim manager to cure a
default up to an aggregate amount that is equal to 5% of the sum of our
shareholder's equity value plus the outstanding amount of our long term debt.
Sprint PCS or its third party designee is not required to incur expenses beyond
this 5% limit. At the end of the initial six month period, Sprint PCS, subject
to the approval of Paribas, has the right to appoint a successor to the interim
manager.
APPOINTMENT OF THIRD PARTY BY PARIBAS TO OPERATE BUSINESS. If Sprint PCS
gives Paribas notice of a breach of the management agreement, UbiquiTel
Operating Company's obligations under the credit agreement are accelerated and
Sprint PCS does not agree to operate the business or is unable to find a
designee, then Paribas may designate a third party to operate the business.
Paribas has this same right if Sprint PCS or its designee is not replaced within
30 days of the end of its term as interim manager. The third party selected by
Paribas must:
- agree to serve for six months unless terminated by Sprint PCS or Paribas;
- meet the requirements for a successor manager specified in the consent and
not be challenged by Sprint PCS for failing to meet the requirements
within 20 days after Paribas provides Sprint PCS with information on the
third party; and
- agree to comply with the terms of the Sprint PCS agreements.
The third party may continue to operate the business after the six month
period at Paribas' discretion, so long as the third party continues to satisfy
the requirements to be a successor manager and does not breach the terms of the
Sprint PCS agreements.
PURCHASE AND SALE OF OPERATING ASSETS
The consent establishes a process for the sale of our operating assets,
without stockholder approval, in the event that UbiquiTel Operating Company
defaults on its obligations to Paribas under the credit facility and Paribas
accelerates the maturity of those obligations.
SPRINT PCS' RIGHT TO PURCHASE ON ACCELERATION OF DEBT. Upon notice of an
acceleration, Sprint PCS has the right, without stockholder approval, to
purchase our operating assets or capital stock under the following terms:
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- The purchase price will be the greater of:
- 72% of our Entire Business Value; or
- the aggregate amount of UbiquiTel Operating Company's obligations under
the credit agreement;
- Sprint PCS must notify Paribas of its intention to exercise the purchase
right within 60 days of receipt of the notice of acceleration;
- Once Sprint PCS has given notice of its intention to exercise the purchase
right, Paribas is prohibited from enforcing its security interests until
the earlier of 120 days after the acceleration or until Sprint PCS
rescinds its intention to purchase;
- If, after the 120-day period after the acceleration date, we receive a
written offer to purchase our operating assets or capital stock that we
confirm in writing to be acceptable to us, Sprint PCS has the right to
purchase our operating assets or our stock on terms and conditions at
least as favorable to us as the offer we receive. Sprint PCS must agree to
purchase the operating assets or capital stock within 14 business days of
its receipt of the offer, on acceptable conditions, and in an amount of
time acceptable to us and Paribas;
- Upon completion of the sale to Sprint PCS and satisfaction in full of
UbiquiTel Operating Company's obligations under the credit agreement,
Paribas must release its security interests.
SALE OF OPERATING ASSETS OR CAPITAL STOCK TO THIRD PARTIES. If Sprint PCS
does not purchase the operating assets or capital stock, following an
acceleration by Paribas of UbiquiTel Operating Company's obligations under the
credit agreement, Paribas may sell our operating assets or stock. In that event,
Paribas has two options:
- to sell the assets or stock to an entity that meets the requirements of a
qualified successor under the Sprint PCS agreements; or
- to sell the assets or stock to any third party, subject to specified
conditions.
SALE OF ASSETS OR CAPITAL STOCK TO QUALIFIED SUCCESSOR. Paribas may sell
the operating assets or capital stock and assign the agreements to entities that
meet the following requirements to succeed us:
- the person has not materially breached a material agreement with Sprint
PCS or its related parties that has resulted in the exercise of a
termination right or in the initiation of judicial or arbitration
proceedings during the past three years;
- the person is not named by Sprint PCS as a prohibited successor and listed
on Schedule 13 to the consent;
- the person has reasonably demonstrated its credit worthiness and can
demonstrate the ability to service the indebtedness and meet the
requirements of the build-out plan; and
- the person agrees to be bound by the Sprint PCS agreements.
Paribas is required to provide Sprint PCS with information necessary to
determine if a buyer meets the requirements to succeed us as manager. Sprint PCS
has 20 days after its receipt of this
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information to object to the qualifications of the proposed successor manager.
If Sprint PCS does not object to the buyer's qualifications, the buyer can
purchase the assets and assume our rights and responsibilities under the Sprint
PCS agreements. The consent will remain in full force and effect for the benefit
of the buyer and its lenders. The buyer also has a period to cure any defaults
under our Sprint PCS agreements.
SALE OF ASSETS OR CAPITAL STOCK TO NON-SUCCESSOR. Paribas may sell, without
stockholder approval, our assets or stock to a party that does not meet the
requirements to succeed us. If such a sale is made:
- Sprint PCS may terminate the Sprint PCS agreements;
- the buyer may purchase from Sprint PCS 5, 7.5 or 10 MHz of the PCS
spectrum licensed to Sprint PCS in our territories under specified terms;
- if the buyer controls, is controlled by or is under common control with an
entity that owns a license to provide wireless service to at least 50% of
the population in a basic trading area where the buyer proposes to
purchase the spectrum from Sprint PCS, the buyer may only buy 5 MHz of
spectrum;
- the price to purchase the spectrum is equal to the sum of the original
cost of the license to Sprint PCS pro rated on a population and a spectrum
basis, plus the cost paid by Sprint PCS for microwave relocation costs
attributable to clearing in the spectrum ultimately acquired by the buyer
of our assets and the amount of carrying costs attributable to the license
and microwave relocation costs from the date of the consent until the
closing of the sale, based on a rate of 12% per annum;
- the buyer will receive from Sprint PCS the customers with the mobile
identification number assigned to the market area covered by the purchased
spectrum except for customers of national accounts and resellers;
- with limited exceptions, Sprint PCS will not solicit for six months the
customers transferred to the buyer with the mobile identification number
assigned to the market area;
- the buyer and Sprint PCS will enter into a mutual roaming agreement with
prices equal to the lesser of the most favored pricing provided by buyer
to third parties roaming in the geographic area and the national average
paid by Sprint PCS to third parties; and
- Sprint PCS will have the right to resell the buyer's wireless services at
most favored nation pricing.
DEFERRAL OF COLLECTED REVENUES. For a period of up to two years after an
acceleration by Paribas of UbiquiTel Operating Company's obligations under the
credit facility, Sprint PCS may only retain one-half of the amount of collected
revenues from our operation of the Sprint PCS Network in our territories that it
would otherwise be entitled to under the management agreement. The balance must
be forwarded to us, or to Paribas if Paribas has elected to redirect payments as
provided in the consent. If Sprint PCS is not serving as the interim manager at
the end of the first year following the acceleration, then Sprint PCS will
retain all of the collected revenues to which it is entitled under the
management agreement (the remainder to be paid to Sprint PCS under an unsecured
deferred note).
RIGHT TO PURCHASE DEBT OBLIGATIONS. Following the acceleration of UbiquiTel
Operating Company's obligations under the credit facility, and until the 60-day
anniversary of the filing of a bankruptcy petition, Sprint PCS has the right to
purchase the obligations to Paribas under the credit facility.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following are summaries of the material provisions of our senior credit
facility and the indenture governing the senior subordinated discount notes of
our subsidiary, UbiquiTel Operating Company.
SENIOR CREDIT FACILITY
On March 31, 2000, UbiquiTel Operating Company entered into a
$250.0 million senior secured credit facility with Paribas.
The credit facility provides for:
- an aggregate of $120,000,000 of senior secured A term loans, which may be
drawn at any time until April 2002, and which mature in October 2007;
- an aggregate of $75,000,000 of senior secured B term loans, which were
drawn down in full on April 11, 2000 and funded into an escrow account,
and which mature in October 2008; and
- a $55,000,000 senior secured revolving credit facility which matures in
October 2007 and includes a $5,000,000 subfacility for the issuance of
letters of credit.
The $75,000,000 million of senior secured B term loans that were funded into
an escrow account will remain the property of our lenders and will not be
released to us if an event of default has occurred under the credit agreement.
Additionally, these funds will not be released to us until specified conditions
have been satisfied. These conditions include, among others, evidence that we
have used all of the proceeds from our sale of senior subordinated discount
notes and from this offering to pay fees and expenses in connection with these
offerings, to fund the build-out of our network or for other general corporate
and working capital purposes. Additional borrowings under our senior credit
facility must be placed into escrow until the conditions to release our initial
borrowing of $75,000,000 have been satisfied.
UbiquiTel Operating Company must repay the A term loans, if borrowed, in 14
consecutive quarterly installments, beginning in June 2004. The amount of each
of the first four installments is $2,500,000, the amount of each of the next
four installments is $3,750,000, the amount of each of the next four
installments is $16,250,000, and the amount of each of the last two installments
is $15,000,000.
UbiquiTel Operating Company must repay the B term loans in eighteen
consecutive quarterly installments, beginning in June 2004. The amount of each
of the first 12 installments is $187,500, the amount of each of the next four
installments is $2,812,500, and the amount of each of the last two installments
is $30,750,000.
The amount that UbiquiTel Operating Company can borrow and that can be
outstanding under the revolving credit facility reduces in eight quarterly
reductions, beginning in December 2005. The amount of each of the reductions is
$6,875,000.
Until the earlier to occur of the syndication of the senior credit facility,
or August 2000, Paribas may re-allocate the amounts among the A term loans, B
term loans and revolving credit facility at their discretion. If these amounts
are re-allocated by Paribas, the installment payments set forth above will also
be subject to re-allocation.
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Interest on the A term loans accrues, at our option, either at:
- the reserve adjusted London interbank offered rate, plus a margin of
between 3.75% and 2.25%; or
- the higher of The Chase Manhattan Bank's prime rate or the federal funds
rate plus 0.5%, plus a margin of between 2.0% and 1.0%.
Interest on the B term loans and the revolving credit loans accrues, at our
option, either at:
- the reserve adjusted London interbank offered rate, plus an applicable
margin of between 4.25% and 2.75%, depending on the level of UbiquiTel
Operating Company's ratio of debt to earnings before interest, taxes,
depreciation and amortization; or
- the higher of The Chase Manhattan Bank's prime rate or the federal funds
rate plus 0.5%, plus an applicable margin of between 2.5% and 1.5%,
depending on the level of UbiquiTel Operating Company's ratio of debt to
earnings before interest, taxes, depreciation and amortization.
Interest on any overdue amounts will accrue at a rate per annum equal to
2.0% plus the rate otherwise applicable to that amount.
The credit facility requires that UbiquiTel Operating Company pay commitment
fees to the lender. Initially, the commitment fee is based on a percentage of
the undrawn amounts of the revolving credit facility and the A term loan
facility. The commitment fees are payable quarterly in arrears and a separate
agent's fee is payable to the administrative agent.
The commitment fee is:
- if 67% or more of the total amount of the facilities is drawn, the
commitment fee is 0.75% of the undrawn amount;
- if less than or equal to 67% and greater than 33% of the total amount of
the facilities is drawn, the commitment fee is 1.125% of the undrawn
amount; or
- if less than or equal to 33% of the total amount of the facilities is
drawn, the commitment fee is 1.375% of the undrawn amount.
We paid origination fees of $7.0 million in connection with the credit
facility.
We must repay the term loans, and the commitments under the revolving credit
facility will be reduced, in an aggregate amount equal to:
- 50% of excess cash flow in each fiscal year;
- 100% of the net proceeds of specified asset sales outside the ordinary
course of business, in excess of a $1.0 million yearly threshold;
- 100% of the net cash proceeds of specified incurrences of indebtedness;
and
- 100% of the net cash proceeds of specified issuances of equity securities,
other than proceeds from this offering.
We have guaranteed all of the obligations of UbiquiTel Operating Company
under the credit facility. UbiquiTel Operating Company's obligations under the
credit facility are secured by security interests in substantially all of its
assets, and by a pledge of all of UbiquiTel Operating Company's capital stock.
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The credit facility contains customary covenants, including covenants
limiting indebtedness, dividends and distributions on, and redemptions and
repurchases of, capital stock and other similar payments, and the acquisition
and disposition of assets. The credit facility also requires that UbiquiTel
Operating Company comply with specified financial covenants, including interest
coverage ratios and indebtedness to total capital ratios and other covenants,
including a requirement to cover a specified percentage of the population in our
market areas. We are currently in compliance with all covenants under the credit
facility.
The credit facility provides for customary events of default, including
cross-defaults, judgment defaults and events of bankruptcy. In case of an event
of default, our lender may declare our debt due and payable.
SENIOR SUBORDINATED DISCOUNT NOTES
On April 11, 2000, UbiquiTel Operating Company issued 300,000 units
consisting of senior subordinated discount notes due 2010 and warrants to
purchase 3,579,000 shares of our common stock, which yielded gross proceeds of
$152.3 million. The notes were issued under an indenture, dated as of April 11,
2000, among us, UbiquiTel Operating Company and American Stock Transfer & Trust
Company, as trustee. The notes:
- mature on April 15, 2010 and are limited to an aggregate principal amount
at maturity of $300.0 million;
- generated gross proceeds to us of $152.3 million;
- are general, unsecured obligations of UbiquiTel Operating Company,
subordinated in right of payment to all senior debt, including all
obligations under the senior credit facility;
- accrue interest at a rate of 14% per annum, computed on a semiannual
basis, calculated from April 11, 2000, will not bear interest payable in
cash prior to April 15, 2005, and will bear interest payable semiannually
in cash on each April 15 and October 15, beginning October 15, 2005; and
- are guaranteed by us.
UbiquiTel Operating Company may elect to redeem all or part of the notes at
any time on or after April 15, 2005 and before maturity, at the following
redemption prices:
<TABLE>
<CAPTION>
REDEMPTION PRICE
PER $1,000 OF
PRINCIPAL
YEAR BEGINNING AMOUNT
-------------- ----------------
<S> <C>
April 15, 2005.............................................. $1,070.00
April 15, 2006.............................................. 1,046.67
April 15, 2007.............................................. 1,023.33
April 15, 2008 and thereafter............................... 1,000.00
</TABLE>
In addition, on or before April 15, 2003, UbiquiTel Operating Company may
redeem up to 35% of the principal amount at maturity of notes issued under the
indenture, at a redemption price equal to $1,140 for each $1,000 of accreted
value of a note to the redemption date, with the net proceeds of one or more
equity offerings (other than the proceeds from this offering).
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However, at least 65% of the aggregate principal amount at maturity of notes
issued under the indenture must remain outstanding immediately after giving
effect to the redemption.
If a change of control occurs, each noteholder may require UbiquiTel
Operating Company to repurchase its notes. The repurchase price will be:
- $1,010 per $1,000 of accreted value of the notes, if the repurchase occurs
before April 15, 2005, or
- $1,010 per $1,000 of principal amount of the notes, plus any accrued
interest, if the repurchase occurs on or after April 15, 2005.
A change of control will occur if:
- we sell substantially all of our and our subsidiaries' assets;
- we adopt a plan for our liquidation or dissolution;
- any person or group of persons, other than certain current stockholders or
their affiliates, become the beneficial owner of more than 50% of the
voting power of our stock; or
- a majority of our board of directors no longer consists of continuing
directors, which are directors who were serving on April 11, 2000, or who
were nominated to serve as a director by a majority of the continuing
directors at the time. Changes in directors elected by particular
investors, such as holders of our preferred stock, are ignored for
purposes of determining continuing directors.
The UbiquiTel Operating Company credit facility prohibits the purchase of
outstanding notes before repayment of the borrowings under the credit facility.
UbiquiTel Operating Company is also required to offer to repurchase the
notes if all or some of the net proceeds of an asset sale are not used to
acquire an entity engaged in a permitted business, to purchase other long-term
assets used or useful in a permitted business or to repay any senior
indebtedness.
We are required, under the terms of a registration rights agreement, to:
- file an exchange offer registration statement on or before June 26, 2000
covering the exchange of the notes for registered notes;
- use our reasonable best efforts to cause the exchange offer registration
statement to be declared effective under the Securities Act on or before
October 8, 2000;
- use our reasonable best efforts to cause the exchange offer registration
statement to be effective continuously;
- keep the exchange offer open for a period of not less than 20 business
days; and
- cause the exchange offer to be consummated no later than the 30th business
day after it is declared effective.
We may also be required to file a shelf registration statement to register
for public resale the notes held by any holder who may not otherwise participate
in the exchange offer.
If we fail to file the exchange offer or shelf registration statement, or
fail to cause the exchange offer or shelf registration statement to become
effective, or fail to consummate the exchange offer as specified above, a
registration default shall be deemed to have occurred and we
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will be required to pay liquidated damages to each holder of the notes. The
liquidated damages payable to each holder of the notes will be in an amount
equal to $0.05 per week per $1,000 in principal amount of the notes held by such
holder for each week or portion thereof that the registration default continues
for the first 90-day period immediately following the occurrence of such
registration default. This amount will increase by an additional $0.05 per week
per $1,000 in principal amount of the notes with respect to each subsequent
90-day period, up to a maximum amount equal to $0.50 per $1,000 in principal
amount of the notes. The provision for liquidated damages will continue until
such registration default has been cured. We will not be required to pay
liquidated damages for more than one registration default at any given time.
The indenture contains restrictive covenants which, among other things,
restrict UbiquiTel Operating Company's and its restricted subsidiaries' ability
to:
- incur additional indebtedness;
- pay dividends, make investments or redeem or retire stock;
- cause encumbrances or restrictions to exist on the ability of its
subsidiaries to pay dividends and make investments in, or transfer
property or assets;
- create liens on their assets;
- sell assets;
- engage in transactions with affiliates;
- engage in businesses other than a permitted business; or
- engage in mergers or consolidations.
The indenture also provides for customary events of default, including
cross-defaults, judgment defaults and events of bankruptcy. In the case of an
event of default, our trustee or the holders of at least 25% in principal amount
of the outstanding notes may declare the notes immediately due and payable. We
are currently in compliance with all covenants under the indenture governing the
notes.
We paid commitment and other fees to our initial purchasers of the notes and
warrants of approximately $6.0 million.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES
The following table presents information with respect to our executive
officers, directors and other key employees.
EXECUTIVE OFFICERS AND DIRECTORS:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Donald A. Harris.................. 47 Chairman of the Board, President and Chief
Executive Officer
Dean E. Russell................... 48 Chief Operating Officer
Paul F. Judge..................... 34 Senior Vice President--Corporate Development
and Finance
Andrew W. Buffmire................ 53 Senior Vice President--Business Development
Robert A. Berlacher............... 45 Director
Peter Lucas....................... 45 Director
Eve M. Trkla...................... 37 Director
Joseph N. Walter.................. 47 Director
OTHER KEY EMPLOYEES:
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Debra A. Gerstenberg.............. 36 Vice President of Human Resources
David L. Zylka.................... 39 Vice President of Engineering
</TABLE>
DONALD A. HARRIS has served as President and Chief Executive Officer and as
a director since our inceptions and was appointed Chairman of the Board in
May 2000. Mr. Harris has more than 17 years of experience in the
telecommunications industry, and is the former president of Comcast Cellular
Communications, Inc., and a former senior vice president of Comcast Corporation.
He also participated in Comcast's efforts on the board of Nextel. Mr. Harris
managed the build-out of and had operating responsibility for Comcast's cellular
operations in Pennsylvania, New Jersey and Delaware with over 8 million
residents. Mr. Harris was also responsible for Comcast's PCS experimental
trials. Prior to joining Comcast in February, 1992, Mr. Harris was Vice
President/ General Manager of PacTel Cellular's Los Angeles office, the then
largest traditional cellular operation in the United States. He also held
several senior management positions with PacTel including Vice President of
Corporate Development, and President and Chief Executive Officer of the San
Francisco Cellular Partnership. Mr. Harris began his career in the cellular
communications industry as a consultant with McKinsey & Company. Mr. Harris is a
graduate of the United States Military Academy at West Point, and holds a
Masters Degree in Business Administration from Columbia University.
DEAN E. RUSSELL has been our Chief Operating Officer since November 1999. He
is responsible for overseeing all of the functional areas of our operations
including sales and marketing, network and field operations, and human
resources. Prior to joining us, Mr. Russell was part of the executive management
team of Education Management Corporation from October 1997 to November 1999. He
held various positions with Education Management Corporation
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including Director of Operations for the Art Institute of Fort Lauderdale and
President of the Art Institute International at San Francisco. Previously,
Mr. Russell was the General Sales Manager for Comcast Cellular
Communications, Inc. in Atlantic City and Cape May County in New Jersey from
October 1995 to October 1997. Prior to joining Comcast Cellular
Communications, Inc., Mr. Russell served in the United States Army for 20 years
before retiring as a Lieutenant Colonel. Mr. Russell has 26 years of leadership
experience including hands on experience managing diverse operations.
Mr. Russell holds a Bachelor of Science Degree in engineering from the United
States Military Academy at West Point and a Masters of Education Degree from the
University of Georgia and a Masters of Business Administration in International
Business from Long Island University.
PAUL F. JUDGE has been our Senior Vice President of Corporate Development
and Finance since our inception. He is responsible for acquisition of new
markets, business and financial planning, and management of strategic
relationships. Mr. Judge is one of our founders and has more than 13 years of
experience in the wireless telecommunications industry. From August 1992 until
joining us, Mr. Judge served as Director of The Walter Group, Inc., where he
served as a senior member of the consulting firm which specializes in management
services for telecommunications and information management companies. Before
joining The Walter Group, Mr. Judge contributed to the formation and analysis of
telecommunications trade policy within the Department of Commerce, as well as
participated in the development of the OmniTracs satellite communications system
today operated by Qualcomm. Mr. Judge holds a Bachelor of Science in Business
Administration from Pepperdine University and a Masters of Business
Administration in International Business Finance from George Washington
University.
ANDREW W. BUFFMIRE joined the Company in May 2000 as Senior Vice President
Business Development. He is responsible for the development and negotiation of
strategic business transactions. Prior to joining us, Mr. Buffmire was a
Director in the Sprint PCS Affiliates Program. He joined Sprint PCS in January
of 1996 during its initial development stage. At Sprint PCS he led the state
related regulatory compliance, network infra-structure and interconnection
negotiations for the market entry of Sprint PCS and provided legal counsel for
various aspects of the network build-out. Before joining Sprint PCS,
Mr. Buffmire was an attorney in private legal practice in Salt Lake City, Utah
for 16 years, with the exception of two years (1985-1987), when he was the
founder, general counsel and registered principal of an NASD registered
investment banking firm. Mr. Buffmire interned with the Commission of the
European Economic Community (EU) in Brussels, Belgium. He has a Bachelor of Arts
Degree in International Relations from the University of Southern California, a
Juris Doctor Degree from the University of Utah and a Master of Laws degree from
the London School of Economics and Political Science.
ROBERT A. BERLACHER has been a director since our inception. Mr. Berlacher
is President of LIP Advisors, Inc., the General Partner of Lancaster Investment
Partners, LP, a technology, telecommunications and healthcare investment
partnership based in King of Prussia, Pennsylvania. Mr. Berlacher is also a
co-founder and director of EGE Holdings, Ltd., a holding company with ownership
interests in investment banking, money management and venture capital. While co-
founding EGE Holdings, Ltd., Mr. Berlacher was also a Managing Director of
Boenning & Scattergood, Inc. from January 1997 to September 1999, and was a
Managing Director and shareholder of Pacific Growth Equities, Inc. from
March 1995 to January 1997. Mr. Berlacher
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graduated from Cornell University in 1976 with a Bachelor of Science degree in
Business Administration-Finance.
PETER LUCAS has been a director since our inception. Mr. Lucas served as
Chief Financial Officer of WesTower Corporation, a public provider of
telecommunications sites and wireless network services, from April 1997 to
September 1999. Mr. Lucas also served as Chief Financial Officer of Cotton
Valley Resources Corporation, a Dallas-based public oil and gas company, from
August 1995 to April 1997. Mr. Lucas received a Bachelor of Commerce degree from
the University of Alberta.
EVE M. TRKLA has been a director since our inception. Ms. Trkla is the
Co-Founder, Senior Managing Director and Chief Financial Officer of Brookwood
Financial Partners, L.P. and its affiliated companies, Brookwood Securities
Partners, L.P., Brookwood Management Partners, L.P. and Brookwood Capital
Partners, L.P. Ms. Trkla oversees the financial administration of Brookwood and
its affiliates and the origination, evaluation, structuring and acquisition of
real estate and private company investments. Brookwood is a Boston-based private
investment and merchant-banking firm which specializes in acquiring and managing
real estate and in providing equity and bridge financing to private companies.
Since its founding in 1993, Brookwood and its affiliated entities have acquired
real estate and corporate assets with a realized and current value in excess of
$400 million. Prior to co-founding Brookwood, Ms. Trkla was the Senior Credit
Officer at The First National Bank of Ipswich, where she created and managed the
credit administration function for this $130 million community bank. Ms. Trkla
spent the first eight years of her career at the First National Bank of Boston
as a lender specializing in large corporate acquisition finance. Ms. Trkla is a
1984 CUM LAUDE graduate of Princeton University.
JOSEPH N. WALTER has been a director since our inception. Mr. Walter founded
The Walter Group, Inc., an international consulting and project management firm
specializing in telecommunications companies, in 1988 and currently serves as
its Chairman and Chief Executive Officer. In January 2000, The Walter Group sold
its consulting and project management group to Wireless Facilities, Inc. The
Walter Group continues to maintain investments in a variety of
telecommunications-based companies. Prior to establishing The Walter Group,
Mr. Walter served as Senior Vice President for McCaw Cellular
Communications, Inc. and was responsible for the corporate headquarters group of
the company. During his tenure at McCaw Cellular, Mr. Walter was also
responsible for establishing McCaw Space Technologies, Inc. and McCaw Government
Services, Inc. He served with McCaw Cellular from 1983 to 1988. Mr. Walter holds
undergraduate degrees in biological science and social ecology from the
University of California, Irvine and a Masters in Business Administration from
the University of Washington.
DEBRA A. GERSTENBERG has been our Vice President of Human Resources since
January 2000. She reports to our Chief Operating Officer and is responsible for
implementing and directing the functions of employee relations, compensation,
benefits, training, equal employment opportunity, staffing and payroll. Prior to
joining us, Ms. Gerstenberg worked for the wireless division of Southwestern
Bell Corporation from July 1999 to January 2000 as the Director of Human
Resources for their Philadelphia Region. She provided human resources support to
the President with full responsibility for the strategic and operational
management of the human resources function. Prior to the acquisition of Comcast
Cellular Communications by Southwestern Bell, she held various senior human
resource management positions at Comcast Cellular from February 1995 to July
1999, including Director of Human Resources. Her previous experience included
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various human resource management positions as well as customer service and
training management positions in the banking industry. Ms. Gerstenberg attended
the University of Delaware's School of Human Resources in Newark, Delaware.
DAVID L. ZYLKA has been our Vice President of Engineering since January
2000. He reports to our Chief Operating Officer and is responsible for the
quality and technical performance of all network operations. Mr. Zylka has
10 years experience in the telecommunications industry. From January 1999 to
December 1999, he served as the Vice President of Engineering for Frontier
Cellular Communications in Rochester, NY where he developed and executed a
$59 million CDMA network expansion plan. Before he joined Frontier Cellular
Communications, Mr. Zylka held various positions at Comcast Cellular
Communications in Philadelphia, Pennsylvania from May 1991 to November 1998,
including Vice President of Systems Performance. He was responsible for the
operational and performance engineering for the Comcast Cellular network.
Mr. Zylka holds a Bachelor of Science in Electrical Engineering from the United
States Military Academy at West Point and a Masters of Science in Information
Systems Management from Golden Gate University.
BOARD OF DIRECTORS
The board of directors is currently fixed at nine members. The five
directors currently comprising our board of directors were all elected pursuant
to our stockholders agreement. Currently there are four vacancies on the board.
Within 90 days of the closing of this offering, we expect to fill the vacancies
with at least three outside directors and one designee of DLJ Merchant Banking
pursuant to the terms of our stockholders agreement. We expect the outside
directors to be experienced leaders in the telecommunications and business
communities with direct experience managing and advising public companies. Upon
the closing of this offering, our stockholders agreements will terminate and our
directors will be divided into three classes. Mr. Lucas and two of the
additional directors to be named to the board will serve as the Class I
directors, and their terms will expire at our 2001 annual stockholders' meeting.
Ms. Trkla and two of the three additional directors to be named to the board
will serve as the Class II directors, and their terms will expire at our 2002
annual stockholders' meeting. Messrs. Harris, Berlacher and Walter will serve as
the Class III directors, and their terms will expire at our 2003 annual
stockholders' meeting. At each annual meeting, the successors to the directors
whose terms expire will be elected to serve three-year terms.
Within 90 days of the closing of this offering, the board of directors will
establish an audit committee, one of whose members shall be the designee of DLJ
Merchant Banking pursuant to our stockholders agreement, and a compensation
committee.
The audit committee will be responsible for recommending to the board of
directors the engagement of our independent auditors and reviewing with the
independent auditors the scope and results of the audits, our internal
accounting controls, audit practices and the professional services furnished by
the independent auditors.
The compensation committee will be responsible for reviewing and approving
all compensation arrangements for our officers, and is also responsible for
administering the equity incentive plan.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee during the year ended December 31, 1999,
consisted of the board of directors. During 1999, Donald A. Harris served as
both an executive officer and a director and has continued to serve in those
capacities in 2000. Mr. Harris participated in deliberations of the board of
directors concerning compensation of executive officers. None of the executive
officers served as a director or member of the compensation committee or other
board committee performing equivalent functions of another corporation, one of
whose executive officers served on our board of directors.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation and bylaws limit the liability of directors
to the maximum extent permitted by Delaware law. The limitation on our
directors' liability may not apply to liabilities arising under the federal
securities laws. Our certificate of incorporation and bylaws provide that we
shall indemnify our directors and executive officers and may indemnify our other
officers and employees and agents and other agents to the fullest extent
permitted by law. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to our directors and executive officers
pursuant to our certificate of incorporation and bylaws, we have been informed
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
EXECUTIVE COMPENSATION
The following table presents summary information with respect to the
compensation paid to our Chief Executive Officer. None of our other executive
officers' salary and bonus exceeded $100,000 during the year ended December 31,
1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
ANNUAL UNDERLYING
COMPENSATION OPTION
-------------------- AWARDS ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) (# OF SHARES) COMPENSATION($)
<S> <C> <C> <C> <C>
Donald A. Harris......................... 19,231(1) -- 2,550,000(2 ) 1,193,505(3 )
Chairman of the Board, President and
Chief Executive Officer
</TABLE>
------------------------
(1) Mr. Harris' annualized salary was $200,000 for 1999. However, he did not
begin to draw any salary until December 1999.
(2) In December 1999, we granted Mr. Harris stock options to purchase up to
2,550,000 shares of our common stock at an exercise price of $0.50 per
share. Subject to earlier vesting upon a
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change of control, the options vest in three equal annual installments
beginning on November 29, 2000.
(3) Of such amount, $993,505 represents non-cash compensation expense recorded
by us in connection with issuing shares of our non-voting common stock to
Mr. Harris under the founders stock agreement. The remaining $200,000
represents a payment by us to Mr. Harris for services rendered prior to our
incorporation.
In November 1999, we entered into an employment agreement with our President
and Chief Executive Officer that provides for an annual base salary of $200,000
for a three year term. See "Employment Agreements." Our Chief Operating Officer
will receive an annual base salary of $165,000 in 2000. Our Senior Vice
President--Corporate Development and Finance will receive an annual base salary
of $125,000 in 2000. We are currently conducting a search for a Chief Financial
Officer and expect to provide annual compensation customary for a position of
this type within our industry.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during the fiscal
year ended December 31, 1999 to each of the named executive officers. No stock
appreciation rights were granted to these individuals during that year.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
(IN THOUSANDS)
EXCEPT PER SHARE DATA
-----------------------------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS POTENTIAL
UNEXERCISED GRANTED TO EXERCISE OR OFFERING PRICE REALIZABLE VALUE
OPTIONS EMPLOYEES IN BASE PRICE TO PUBLIC EXPIRATION OFFERING PRICE
NAME GRANTED(1) FISCAL YEAR ($)/(SH)(2) ($)/(SH)(3) DATE TO PUBLIC(3)
<S> <C> <C> <C> <C> <C> <C>
Donald A. Harris..... 2,550,000 80% $0.50 $ 8.00 11/29/09 $19,125,000
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
OPTION TERM(4)
-------------------------
NAME 5%($) 10%($)
<S> <C> <C>
Donald A. Harris..... $24,761,112 $31,579,404
</TABLE>
------------------------
(1) Subject to earlier vesting upon a change of control, the options granted to
Mr. Harris vest annually in three equal installments beginning November 29,
2000.
(2) Prior to this offering, there has been no public market for our common
stock. The exercise price of each of these options is equal to the fair
market value of our common stock on the date of grant as determined by our
board of directors.
(3) Potential realizable value is based on the product of the offering price on
the cover of this prospectus minus the exercise price multiplied by the
number of shares underlying the options.
(4) Potential realizable value is based on the assumption that the common stock
price appreciates at the annual rate shown, compounded annually, from the
date of grant until the end of the option term. The amounts have been
calculated based on the assumed appreciation rates shown in the table,
assuming a per share market price equal to the mid-point of the estimated
range of the offering price on the cover of this prospectus. The actual
value, if any, a named executive officer may realize will depend on the
excess of the stock price over the exercise price on the date the option is
exercised, if the executive were to sell the shares on the date of exercise,
so there is no assurance that the value realized will be equal to or near
the potential realizable value as calculated in this table.
AGGREGATED 1999 FISCAL YEAR-END OPTION VALUES
The following table provides summary information regarding options held by
each of our named executive officers as of December 31, 1999. There was no
public market for the common stock as of December 31, 1999. Accordingly, the
value of unexercised in-the-money options is
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based on the offering price on the cover page of this prospectus less the
exercise price payable for such shares.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
ACQUIRED VALUE YEAR-END(#) AT FISCAL YEAR-END
NAME ON EXERCISE(#) REALIZED (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
---- -------------- -------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Donald A. Harris..... -- -- 0/2,550,000 $0/$19,125,000
</TABLE>
OPTION GRANTS IN FISCAL YEAR 2000
None of our executive officers or directors have been granted stock options
or stock appreciation rights in fiscal 2000 through the date of this prospectus,
except for 75,000 options priced at the midpoint of this offering granted to
Andrew W. Buffmire.
COMPENSATION OF DIRECTORS
Currently, we do not compensate our directors. We do reimburse directors for
their expenses of attendance at board meetings. Upon the closing of this
offering, each of our independent directors who is not an employee of ours or a
board designee of one of our current stockholders will receive an annual fee of
$12,000 for serving on our board, plus a $1,000 fee for each regularly scheduled
meeting he or she attends and a $1,000 fee for each special meeting and each
committee meeting he or she attends. In addition, each of these directors, upon
joining our board, receives an option to purchase 20,000 shares of our common
stock at an exercise price equal to the fair market value of the stock on the
date of grant. These options will typically vest over three years.
EMPLOYMENT AGREEMENTS
In November 1999, we entered into an employment agreement with Donald A.
Harris, our Chairman of the Board, President and Chief Executive Officer.
Mr. Harris' employment agreement is for a three-year term and provides for an
annual base salary of $200,000, with a guaranteed annual increase of 5% over the
next two years. In addition to his base salary, Mr. Harris is eligible to
receive bonuses in such amounts and at such times as determined by the
disinterested members of our Board of Directors. Under the employment agreement,
we granted Mr. Harris stock options to purchase 2,550,000 shares of our common
stock at a purchase price of $0.50 per share. Mr. Harris' stock options vest in
three equal installments over a period of three years. In the event of a defined
change of control, all of these options will become fully exercisable.
The employment agreement provides that Mr. Harris' employment may be
terminated by us with or without cause, as defined in the agreement, at any time
or by Mr. Harris for any reason at any time upon thirty days' written notice to
us. If Mr. Harris' employment is terminated by us without cause, he is entitled
to receive one year's base salary and benefits, and all his unvested stock
options will immediately vest on the date of termination. If Mr. Harris's
employment is terminated by us for cause, he is not entitled to any compensation
or benefits other than unpaid salary and benefits and unreimbursed expenses
incurred by him through the date of termination. If Mr. Harris voluntarily
terminates his employment, he is entitled to unpaid salary and benefits and
unreimbursed expenses incurred by him through the date of termination. Under the
employment
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agreement, Mr. Harris agreed not to compete in the business of wireless
telecommunications either directly or indirectly in our present and future
markets during his employment and for a period of one year after his employment
is terminated. In addition, Mr. Harris agreed not to disclose any of our
confidential information and not to solicit any of our customers or employees
during his employment and for a period of one year after his employment is
terminated.
2000 EQUITY INCENTIVE PLAN
Our board of directors has adopted, and our stockholders have approved, the
UbiquiTel Inc. 2000 Equity Incentive Plan. Under the equity incentive plan,
stock options and other equity-based awards may be granted to our and our
subsidiaries' directors, officers, selected employees and consultants. A
committee of our board of directors administers the equity incentive plan.
The committee may grant stock options, stock appreciation rights and other
equity-based awards to eligible persons. In no event, however, may the committee
grant awards relating to more than 4,080,000 shares of common stock pursuant to
the equity incentive plan. Shares subject to awards that expire or are
terminated or canceled prior to exercise or payment, or forfeited or reacquired
by us pursuant to rights reserved upon issuance, may be issued again under the
equity incentive plan. Awards paid in cash are not counted against the number of
shares that may be issued under the equity incentive plan.
Awards may be satisfied by the delivery of either authorized but unissued
common stock or issued common stock held as treasury shares. The committee may
grant one or more types of awards in any combination to a particular participant
in a particular year. Subject to earlier termination by our board of directors,
the equity incentive plan will remain in effect until all awards have been
satisfied in stock or in cash or terminated under the terms of the equity
incentive plan and all restrictions imposed on stock in connection with its
issuance under the equity incentive plan have lapsed. Except in the case of an
award of stock to a participant as additional compensation for services to us or
our subsidiaries, each award will be confirmed by, and is subject to the terms
of, an agreement executed by the participant and us.
Following is a description of each type of award or grant that may be made
under the equity incentive plan.
STOCK OPTIONS
Stock options may be incentive stock options that comply with the
requirements of Section 422 of the Internal Revenue Code or nonqualified stock
options that do not comply with Section 422 of the Internal Revenue Code. The
board will determine the exercise price and other terms and conditions of
options.
The exercise price for an option may be paid in shares of common stock
valued at their then fair market value if the shares have been held by the
optionee for at least six months. To the extent permitted by the board, the
exercise price for an option may be paid in shares of common stock that have not
been held for six months, or in any other manner.
All incentive options expire no later than 10 years after the date of grant.
Incentive options may not be granted to any participant who, at the time of the
grant, would own (as determined by the Internal Revenue Code) more than 10% of
the total combined voting power of all classes of our stock or of any of our
subsidiaries.
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STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS
A stock appreciation right is a right to receive, without payment to us, a
number of shares of stock, cash or a combination thereof, as determined by a
formula. A limited stock appreciation right is a right to receive, without
payment to us, cash in amount determined by a formula upon specified change in
control events. Stock appreciation rights may be granted in conjunction with all
or any part of a stock option or independently. Upon the exercise of a stock
appreciation right, the participant will be entitled to receive, for each share
of common stock to which the exercised stock appreciation right relates, the
excess of the fair market value per share of common stock on the date of
exercise over the grant price of the stock appreciation right. Stock
appreciation rights shall have such terms and conditions as may be established
by the board. Upon the exercise of a limited stock appreciation right, the
participant will be entitled to receive a cash payment, for each share of common
stock to which the exercised limited stock appreciation right relates, equal to
the excess of the defined change of control value over the grant price of the
limited stock appreciation right.
OTHER STOCK-BASED AWARDS
The committee has the authority under the equity incentive plan to make
other awards that are valued in whole or in part by reference to, or are payable
in or otherwise based upon, shares of common stock, including awards valued by
reference to our performance or the performance of our subsidiaries. The
committee will determine the participants to whom and the times at which these
awards will be made, the number of shares of common stock to be awarded and all
other terms and conditions of the awards.
If, with respect to the common stock, there is any recapitalization,
reclassification, stock dividend, stock split, combination of stock or other
similar change in stock, the number of shares of common stock issuable or issued
under the equity incentive plan, including stock subject to restrictions,
options or achievement of performance objectives, shall be adjusted in
proportion to the change in the number of outstanding shares of common stock. In
the event of any of these adjustments, the board will adjust, to the extent
appropriate, the purchase price of any option, the performance objectives of any
award and the stock issuable pursuant to any award to provide participants with
the same relative rights before and after the adjustment.
In the event of a defined change of control, all outstanding options,
including incentive options, stock appreciation rights and limited stock
appreciation rights granted pursuant to the equity incentive plan, will become
fully exercisable, all restrictions or limitations on any award under the equity
incentive plan will lapse, and all performance criteria and other conditions
relating to the payment of awards will be deemed achieved or waived by us
without further action.
The equity incentive plan may be amended or terminated at any time by our
board of directors, except that no amendment may be made without stockholder
approval if such approval is necessary to comply with any tax or regulatory
requirement.
The equity incentive plan is not subject to any provision of ERISA and is
not qualified under Section 401(a) of the Internal Revenue Code.
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We have granted an aggregate of 1,215,000 non-qualified options pursuant to
our equity incentive plan of which 650,000 were granted in 1999 and the balance
of 565,000 were granted in January 2000. We granted an additional 2,550,000
non-qualified options in 1999.
NONCOMPETITION AGREEMENTS
In connection with the granting of any stock options or equity-based awards
under our equity incentive plan to any of our employees, each employee is
required to enter into a noncompetition agreement. These agreements will provide
that for so long as the employee works for us, and for a period of one year
after the employee's termination for any reason, the employee may not disclose
in any way any confidential information. The agreements also provide that for so
long as the employee works for us and for a period of one year after the
employee's termination for any reason, the employee is prohibited from:
- engaging in the same business or in a similar capacity in our markets;
- soliciting business in competition with us; and
- hiring any of our employees or directly or indirectly causing any of our
employees to leave their employment to work for another employer.
In the event of a breach of the noncompetition agreement by an employee, we
have the option to repurchase any and all shares held by the employee at the
employee's exercise price. We may also pursue any other remedies provided by law
or in equity.
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PRINCIPAL STOCKHOLDERS
The table below sets forth information regarding the beneficial ownership of
our common stock as of May 31, 2000, by the following individuals or groups:
- each person or entity who is known by us to own beneficially more than
5.0% of our common stock;
- each of our named executive officers;
- each of our directors; and
- all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of our common stock that are subject to
warrants or stock options that are presently exercisable or exercisable within
60 days of May 31, 2000 are deemed to be outstanding and beneficially owned by
the person holding the warrants or stock options for the purpose of computing
the percentage of ownership of that person, but are not treated as outstanding
for the purpose of computing the percentage of any other person.
Unless indicated otherwise below, the address of our directors and officers
is c/o UbiquiTel Inc., 1 Bala Plaza, Suite 402, Bala Cynwyd, Pennsylvania 19004.
Except as indicated below, the persons named in the table have sole voting and
investment power with respect to all shares of common stock beneficially owned
by them.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NUMBER OF SHARES OWNERSHIP PRIOR OWNERSHIP AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED TO THIS OFFERING THIS OFFERING
------------------------ ------------------ ---------------- ---------------
<S> <C> <C> <C>
9,338,000 18.6% 14.9%
Eve M. Trkla(1).........................
Brookwood Ubiquitel Investors, LLC
5,402,700 10.7 8.6
Peter Lucas(2)..........................
CBT Wireless Investments, L.L.C.
4,978,150 9.9 7.9
BET Associates, L.P.(3).................
4,297,696 8.6 6.8
Donaldson, Lufkin & Jenrette Merchant
Banking Partners II, L.P.(4)..........
4,029,802 8.0 6.4
Donald A. Harris(5).....................
4,002,000 8.0 6.4
New Ventures, L.L.C.(6).................
3,335,000 6.6 5.3
SpectraSite Communications, Inc.(7).....
3,001,800 6.0 4.8
Stephen C. Marcus(8)....................
2,614,034 5.2 4.2
Joseph N. Walter(9).....................
The Walter Group, Inc.
2,701,050 5.4 4.3
Robert A. Berlacher(10).................
Lancaster Investment Partners.........
819,324 1.6 1.3
Paul F. Judge...........................
7,550,176 15.0 12.0
All officers and directors as a group
(7 persons)...........................
</TABLE>
------------------------
(FOOTNOTES ON FOLLOWING PAGE)
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(1) The address of Brookwood Ubiquitel Investors, LLC, is 55 Tozer Road,
Beverly, Massachusetts 01915. Ms. Trkla, a director of ours, is a principal
of Brookwood Ubiquitel Investors and may be deemed to be the beneficial
owner of the shares held by Brookwood Ubiquitel Investors, LLC. Ms. Trkla
disclaims beneficial ownership of such shares.
(2) The address of CBT Wireless Investments, L.L.C., is 1733 H Street, #330-141,
Blaine, Washington 98230. Peter Lucas, a director of ours, serves as the
general manager of CBT Wireless Investment and has investment power over its
shares as to which Mr. Lucas disclaims beneficial ownership.
(3) The address of BET Associates, L.P., is 3103 Philmont Avenue, Huntington
Valley, Pennsylvania 19006.
(4) The address of DLJ Merchant Banking Partners II, L.P. is 277 Park Avenue,
New York, New York 10172. A board designee of DLJ Merchant Banking Partners
II, L.P is yet to be named pursuant to the terms of our stockholder
agreement.
(5) Includes 240,000 shares held by the Harris Family Trust as to which shares
Mr. Harris disclaims beneficial ownership. Mr. Harris serves as our Chairman
of the Board, President and Chief Executive Officer and as a director.
(6) The address of New Ventures, L.L.C., is 211 North Union Street, Suite 300,
Alexandria, Virginia 22314.
(7) The address of SpectraSite Communications is 160 Regency Forest Drive,
Suite 400, Cary, North Carolina 27511.
(8) The address of Stephen Marcus is 915 Exeter Crest, Villanova, Pennsylvania
19085.
(9) The address of The Walter Group, Inc., is 120 Lakeside Avenue, Suite 310,
Seattle, Washington 98122-6578. Joseph N. Walter, a director of ours, is a
principal of The Walter Group, Inc. and may be deemed to beneficially owner
of the shares held by The Walter Group, Inc. Mr. Walter disclaims beneficial
ownership of such shares.
(10) Includes 2,001,000 shares held of record by Lancaster Investment
Partners, L.P. Robert A. Berlacher, a director of ours, is President of LIP
Advisors, Inc., the general partner of Lancaster Investor Partners, L.P. The
address of Mr. Berlacher and Lancaster Investment Partners, L.P. is 1150
First Avenue, Suite 600, King of Prussia, Pennsylvania 19406.
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CERTAIN TRANSACTIONS
UbiquiTel and its management and security holders and their respective
affiliates engage in a variety of transactions between or among each other in
the ordinary course of their respective businesses. All of these related party
transactions that are material to Ubiquitel are described below. As a general
rule, we have not retained an independent third party to evaluate these
transactions, and there has been no independent committee of our board of
directors to evaluate these transactions. Notwithstanding this fact, we believe
that the terms and conditions of these transactions, including the fees or other
amounts paid by us, took into account transactions of a similar nature entered
into by us with unaffiliated third parties and/or market transactions of a
similar nature entered into by unaffiliated third parties. There can be no
assurance that we could not have obtained more favorable terms from an
unaffiliated third party.
COMMON STOCK STOCK ISSUANCES
The following tables set forth, as of May 31, 2000, all shares of our voting
and non-voting common stock that have been issued to our stockholders. All of
these amounts have been adjusted to give effect to our two-for-one stock split.
ISSUANCES OF VOTING COMMON STOCK IN NOVEMBER 1999 AND APRIL 2000:
<TABLE>
<CAPTION>
TOTAL
NAME NUMBER OF SHARES PURCHASE PRICE
---- ---------------- --------------
<S> <C> <C>
The Walter Group, Inc..................... 2,614,034 $ 1,281
Donald A. Harris.......................... 2,028,802 994
James Parsons............................. 905,158 444
Paul F. Judge............................. 819,324 402
US Bancorp................................ 603,440 296
--------- -------
Totals.................................. 6,970,758 $ 3,417
========= =======
</TABLE>
These amounts include shares that were issued in April 2000, at no
additional costs, to our founding stockholders to maintain certain specified
stock percentages. These additional shares were issued as a result of our
contractual obligations under a founders stock agreement. See "--Stockholders'
Agreements" below.
ISSUANCES OF NON-VOTING COMMON STOCK IN NOVEMBER 1999:
<TABLE>
<CAPTION>
TOTAL
NAME NUMBER OF SHARES PURCHASE PRICE
---- ---------------- --------------
<S> <C> <C>
The Walter Group.......................... 12,000,320 $ 6,000
James Parsons............................. 4,155,200 2,078
Donald A. Harris.......................... 9,313,280 4,657
US Bancorp................................ 2,770,240 1,385
Paul F. Judge............................. 3,760,960 1,880
---------- -------
Totals.................................. 32,000,000 $16,000
========== =======
</TABLE>
The shares of non-voting common stock were issued to the holders pursuant to
the terms of a founders stock agreement. The holders of our shares of non-voting
common stock are not entitled
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to equity participation rights, such as rights to receive dividends or other
distributions in the event we are sold, merged or liquidated, until such time as
the shares of non-voting common stock are converted into shares of voting common
stock. The shares of non-voting common stock vest as shares of voting common
stock only if we issue shares or instruments convertible into shares of our
capital stock that would cause the founding stockholders to own less than
certain specified percentages. See "--Stockholders' Agreements" below.
All outstanding shares of our non-voting common stock will be cancelled upon
consummation of this offering for nominal value.
PREFERRED STOCK ISSUANCES
The following tables set forth, as of May 31, 2000, shares of our preferred
stock that have been issued to our stockholders that are deemed to beneficially
own, as of April 12, 2000, more than 5% of our common stock, or who serve as our
executive officers or directors.
ISSUANCES OF SERIES A PREFERRED STOCK IN NOVEMBER 1999:
<TABLE>
<CAPTION>
TOTAL
NAME NUMBER OF SHARES PURCHASE PRICE
---- ---------------- --------------
<S> <C> <C>
Brookwood Ubiquitel Investors, L.L.C...... 9,338,000 $ 4,669,000
CBT Wireless Investments, L.L.C........... 5,402,700 2,701,350
New Ventures, L.L.C....................... 4,002,000 2,001,000
Stephen C. Marcus......................... 3,001,800 1,500,900
SpectraSite Communications, Inc........... 3,335,000 1,667,500
Donald A. Harris.......................... 2,001,000 1,000,500
Lancaster Investment Partners............. 2,001,000 1,000,500
Robert A. Berlacher....................... 700,050 350,025
---------- -----------
Totals.................................. 29,781,550 $14,890,775
========== ===========
</TABLE>
Our director, Ms. Trkla, is affiliated with Brookwood Ubiquitel Investors,
L.L.C. Our director, Peter Lucas, is affiliated with CBT Wireless Investments,
L.L.C. Our director, Mr. Berlacher, is affiliated with Lancaster Investment
Partners.
The amounts listed above are adjusted to reflect the number of shares of
common stock that the preferred stockholders will receive upon conversion of our
preferred stock into common stock, after giving effect to our two-for-one stock
split.
ISSUANCES OF SERIES B PREFERRED STOCK IN FEBRUARY 2000 AND APRIL 2000:
<TABLE>
<CAPTION>
TOTAL
NAME NUMBER OF SHARES PURCHASE PRICE
---- ---------------- --------------
<S> <C> <C>
DLJ Merchant Banking...................... 4,297,696 $25,000,000
</TABLE>
This amount includes shares that were issued in April 2000, at no additional
cost, to DLJ Merchant Banking, to maintain certain specified stock percentages.
These additional shares were issued as a result of our contractual obligations
under a preferred stock purchase agreement with DLJ Merchant Banking. These
anti-dilution rights granted to DLJ Merchant Banking will expire upon the
closing of this offering. The amount listed above is adjusted to reflect the
number of
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shares of common stock that DLJ Merchant Banking will receive upon conversion of
our preferred stock into common stock, after giving effect to our two-for-one
stock split.
In the event that we do not complete this offering prior to July 31, 2000,
DLJ Merchant Banking has agreed to purchase additional shares of our preferred
stock for an aggregate purchase price of $100.0 million. DLJ Merchant Banking's
agreement to purchase the additional shares is subject to specified conditions
precedent, including a condition that we have not experienced a material adverse
change in our business or operations.
TERMS OF PREFERRED STOCK
The holders of our preferred stock are entitled to the number of votes equal
to the number of shares of common stock into which they may be converted. The
holders of our preferred stock are also entitled to receive dividends at a rate
of 7% per year and dividends will accrue if not paid. We have not paid any
dividends to our holders of preferred stock as of the date of this prospectus.
Our preferred stock will convert into common stock on a one-for-one basis upon
the completion of this offering and, upon conversion, we will be required to pay
all accrued dividends. We have the option to pay accrued dividends in cash or
stock. Until such conversion, our holders of preferred stock will be entitled to
liquidation preferences and rights to approve specified transactions, including
certain major transactions by us.
We intend to pay accrued dividends to the holders of our preferred stock in
cash upon the closing of this offering. We will pay the following cash dividends
to the holders of preferred stock that are listed in the tables above as
follows:
<TABLE>
<CAPTION>
NAME AMOUNT OF CASH DIVIDEND
---- -----------------------
<S> <C>
Brookwood Ubiquitel Investors, L.L.C.............. $143,338
CBT Wireless Investments, L.L.C................... 81,892
New Ventures, L.L.C............................... 61,431
Stephen C. Marcus................................. 45,479
SpectraSite Communications, Inc................... 51,192
Donald A. Harris.................................. 30,715
Lancaster Investment Partners..................... 30,715
Robert A. Berlacher............................... 10,606
DLJ Merchant Banking.............................. 493,836
</TABLE>
STOCKHOLDERS' AGREEMENTS
In connection with the issuance of common stock to our founders in November
1999, we entered into a founders stock agreement. The founders stock agreement
provides, among other things, that the founding stockholders will become vested
in shares of voting common stock to maintain certain specified percentages of
voting common stock. As a result of the founders stock agreement, our founding
stockholders vested, at no additional costs to the founding stockholders, in a
total of 136,758 shares of our voting common stock in April 2000. These shares
are reflected in the tables set forth above. Our founding stockholders have also
entered into a co-sale agreement, which provides certain co-sale rights if a
founding stockholder desires to sell our shares.
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In connection with the issuance of our preferred stock, we entered into
stockholders' agreements. The stockholders' agreements include provisions
relating to the election of our directors, as well as tag-along, bring-along,
preemptive and first offer rights. Our stockholders' agreement with DLJ Merchant
Banking gives DLJ Merchant Banking the right to cause us to acquire all of its
equity holdings in us if we have not completed an initial public offering of our
common stock which results in at least $50 million of gross proceeds by
February 24, 2005.
All of these agreements will terminate upon the closing of this offering.
REGISTRATION RIGHTS AGREEMENTS
We have also granted registration rights to all of our current stockholders.
Under these agreements, we are required to register shares of common stock upon
request. The registration rights agreements will survive the closing of this
offering. See "Description of Capital Stock--Registration Rights."
WARRANTS
In December 1999, we borrowed $8.0 million from BET Associates and issued
BET Associates a warrant to purchase 2,489,175 shares of our common stock. On
April 12, 2000, BET Associates exercised the warrant for a purchase price of
$24,891 and was issued 2,489,175 shares of our common stock, which will be
converted into 4,978,150 shares as a result of our two-for-one stock split to be
effective as of the date of this prospectus. We agreed to certain repurchase
provisions relating to the common stock issued to BET Associates under the
warrant. The repurchase provisions will terminate upon the closing of this
offering.
Upon the closing of our senior subordinated discount note offering, we
issued to Donaldson, Lufkin & Jenrette Securities Corporation warrants to
purchase shares of our common stock. These warrants are expected to be cancelled
prior to the closing of this offering and we will issue new warrants to
Donaldson, Lufkin & Jenrette Securities Corporation to purchase up to
86,183 shares of our common stock at an exercise price equal to the initial
public offering price per share. These warrants will be exercisable at any time
after the first anniversary of this offering and expire on the fifth anniversary
of this offering.
LOAN WITH STOCKHOLDER
In December 1999, we borrowed $8.0 million from BET Associates. The note
evidencing the borrowing of $8.0 million provided that interest at 12% would be
payable quarterly, commencing April 1, 2000, and would mature on December 28,
2007. We paid the note in full from the proceeds of our sale of senior
subordinated discount notes on April 11, 2000. The prepayment of the BET
Associates note included unpaid interest of $276,000, and a prepayment fee of
$80,000.
CONTRACTUAL ARRANGEMENTS WITH STOCKHOLDERS
We have a master lease-agreement with SpectraSite Communications.
SpectraSite Communications did not receive any payments under our agreement
during 1999. We recently entered into a new master site agreement with
SpectraSite Communications for its existing towers as well as towers that it may
construct for us on build-to-suit sites that we identify from time to time under
a master design and build agreements between us. Under the master design and
build
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agreement, SpectraSite Communications has the right of first refusal to
construct and acquire build-to-suit sites and we are entitled to engage
SpectraSite Communications to handle any construction necessary to install our
network equipment on shared facilities that we license or sublicense from
SprectraSite Communications or any third party. The master design and build
agreement has a term of five years unless services have been performed in
markets totaling a covered population of ten million. Under the master site
agreement, we intend to license space on build-to-suit sites or sublicense space
on SpectraSite Communication's existing towers to house our network equipment.
See "Business--Business Strategy--Utilize Other Strategic Third Party
Relationships in Network Build-out--SpectraSite Communications" for a
description of the general terms of the master site agreement. For the three
months ended March 31, 2000, Ubiquitel accrued fees of $773,000 due to
SpectraSite.
We received consulting services from The Walter Group in 1999. We paid The
Walter Group $148,000 for these consulting services in 1999. In January, 2000,
The Walter Group sold certain of its assets to Wireless Facilities Inc., a
wireless engineering and consulting firm. As a result, consulting services that
we previously received from The Walter Group are now provided by Wireless
Facilities, Inc., which is not affiliated with any of our directors, officers or
principal stockholders.
OTHER FEES PAID TO STOCKHOLDERS
An affiliate of Donaldson, Lufkin & Jenrette entered into a commitment
letter with us in February 2000 to provide up to $125.0 million of senior
subordinated increasing rate notes. The commitment letter provided that the
affiliate of Donaldson, Lufkin & Jenrette would be paid a fee upon the closing
of our senior subordinated discount notes. We paid the commitment fee of
$531,250 on April 11, 2000. Donaldson, Lufkin & Jenrette was also one of the
initial purchasers under our sale of units of warrants and senior subordinated
discount notes in April 2000, for which they received approximately
$4.5 million for performing these services. Donaldson, Lufkin & Jenrette
Securities Corporation is the lead manager of this offering and will receive
underwriting compensation described under the caption "Underwriting" elsewhere
in this prospectus.
During 1999, we paid Mr. Parsons $911,000 and we paid US Bancorp $604,000
for services provided to us in connection with obtaining, negotiating and
closing of the sale of our preferred stock in November 1999. We also paid a fee
of $1.0 million to an entity affiliated with Mr. Parsons in April 2000 in
connection with the closing of our $250.0 million senior credit facility.
ASSIGNMENT OF SPRINT PCS AGREEMENT TO US
In October 1998, a limited liability company whose sole member was The
Walter Group entered into a management agreement with Sprint PCS whereby it
became the Sprint PCS affiliate with the exclusive right to provide PCS services
under the Sprint and Sprint PCS brand names in the Reno/Tahoe market. The
limited liability company subsequently changed its name to Ubiquitel L.L.C.
During the period from October 1998 to October 1999, Ubiquitel L.L.C. attempted
unsuccessfully to obtain financing for the build-out of the Reno/Tahoe market.
In November 1999, Ubiquitel L.L.C. assigned the management and related
agreements to us. Ubiquitel L.L.C. had no operations or financial transactions
prior to the assignment of these agreements to us.
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REGULATION OF THE WIRELESS TELECOMMUNICATIONS INDUSTRY
The Federal Communications Commission, commonly referred to as the FCC,
regulates the licensing, construction, operation, acquisition and
interconnection arrangements of wireless telecommunications systems in the
United States. The FCC has promulgated, and is in the process of promulgating, a
series of rules, regulations and policies to, among other things:
- grant or deny licenses for PCS frequencies;
- grant or deny PCS license renewals;
- rule on assignments and/or transfers of control of PCS licenses;
- govern the interconnection of PCS networks with other wireless and
wireline carriers;
- establish access and universal service funding provisions;
- impose fines and forfeitures for violations of any of the FCC's rules; and
- regulate the technical standards of PCS networks. The FCC currently
prohibits a single entity from having a total attributable interest (20%
or greater interest in any license) in broadband PCS, cellular and SMR
licenses totaling more than 45 MHz in all geographic areas except rural
areas. In rural areas, the so-called "spectrum cap" is 55 MHz.
TRANSFERS AND ASSIGNMENTS OF PCS LICENSES
The FCC must give prior approval to the assignment of, or transfers
involving, substantial changes in ownership or control of a PCS license.
Non-controlling interests in an entity that holds a PCS license or operates PCS
networks generally may be bought or sold without prior FCC approval. In
addition, a recent FCC order requires only post-consummation notification of
certain pro forma assignments or transfers of control.
CONDITIONS OF PCS LICENSES
All PCS licenses are granted for 10-year terms conditioned upon timely
compliance with the FCC's build-out requirements. Pursuant to the FCC's
build-out requirements, all 30 MHz broadband PCS licensees must construct
facilities that offer coverage to one-third of the population within 5 years and
to two-thirds of the population within 10 years, and all 10 MHz broadband, PCS
licensees (and 15 MHz licensees resulting from disaggregation of MHz spectrum
blocks) must construct facilities that offer coverage to at least one-quarter of
the population within 5 years or make a showing of "substantial service" within
that 5 year period. Rule violations could result in the forfeiture of the
affected license and an inability to regain the license. The FCC also requires
licensees to maintain a certain degree of control over their licenses. The
Sprint PCS agreements reflect an alliance that the parties believe meets the FCC
requirements for licensee control of licensed spectrum. If the FCC were to
determine that our agreements with Sprint PCS need to be modified to increase
the level of licensee control, the Sprint PCS agreements may be modified to cure
any purported deficiency regarding licensee control of the licensed spectrum. If
the agreements cannot be modified, they may be terminated. As a result, it would
be extremely difficult for us to conduct our business. In addition to revoking
licenses, the FCC could impose monetary penalties on us.
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<PAGE>
PCS LICENSE RENEWAL
PCS licensees can renew their licenses for additional 10 year terms. PCS
renewal applications are not subject to auctions. However, under the FCC's
rules, third parties may oppose renewal applications and/or file competing
applications. If one or more competing applications are filed, a renewal
application will be subject to a comparative renewal hearing. The FCC's rules
afford PCS renewal applicants involved in comparative renewal hearings with a
"renewal expectancy." The renewal expectancy is the most important comparative
factor in a comparative renewal hearing and is applicable if the PCS renewal
applicant has provided "substantial service" during its license term and
substantially complied with all applicable laws and FCC rules and policies. The
FCC's rules define "substantial service" in this context as service that is
sound, favorable and substantially above the level of mediocre service that
might minimally warrant renewal. The Federal Communications Commission's renewal
expectancy and procedures make it likely that Sprint PCS will retain its PCS
licenses managed by us in the foreseeable future.
INTERCONNECTION
The FCC has the authority to order interconnection between commercial mobile
radio service providers and any other common carrier. The FCC has ordered local
telephone companies to provide reciprocal compensation to commercial mobile
radio service providers for the termination of traffic. Using these rules, we
will negotiate interconnection agreements for the Sprint PCS Network in our
market area with all of the major regional Bell operating companies, GTE and
several smaller independent local telephone companies. We will seek to negotiate
interconnection agreements on a regional or state-wide basis where possible. If
an agreement cannot be reached, under certain circumstances, parties to
interconnection negotiations can submit outstanding disputes to state
authorities for arbitration. Negotiated interconnection agreements are subject
to state approval. The Federal Communications Commission rules and rulings, as
well as the state arbitration proceedings, will directly impact the nature and
cost of the facilities necessary for interconnection of the Sprint PCS systems
with local, national and international telecommunications networks. They will
also determine the nature and amount of revenues we and Sprint PCS can receive
for terminating calls originating on the networks of local telephone companies
and other telecommunications carriers.
OTHER FCC REQUIREMENTS
In June 1996, the FCC adopted rules that prohibit broadband PCS providers
from unreasonably restricting or disallowing resale of their services or
unreasonably discriminating against resellers. Resale obligations will
automatically expire on November 24, 2002, although wireless carriers will still
face a statutory obligation to provide their interstate services on a
non-discriminatory basis. The FCC is also considering whether wireless providers
should be required to offer unbundled communications capacity to resellers who
intend to operate their own switching facilities.
The FCC also adopted rules in June 1996 that require local telephone
companies and most commercial mobile radio service carriers to program their
networks to allow customers to change service providers without changing
telephone numbers, which is referred to as service provider number portability.
Initially, the FCC required that most commercial mobile radio service providers
be able to deliver calls from their networks to ported numbers anywhere in the
country
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<PAGE>
by December 31, 1998. In response to a Cellular Telephone Industry Association
petition for forbearance, the FCC has extended until November 24, 2002 the
deadline to implement local number portability. The FCC has required that
commercial mobile radio service providers must be able to offer their own
customers number portability in their switches in the 100 largest metropolitan
areas, including the ability to support nationwide roaming, by March 31, 2000.
Additionally, carriers were required to request number portability capability in
the 100 largest metropolitan areas by June 30, 1999. Commencing in 1999, all
carriers were required to begin contributing to the Local Number Portability
fund.
The FCC has adopted rules permitting broadband PCS and other commercial
mobile radio service providers to provide traditional telephone services based
on wireless technology and other fixed services that would directly compete with
the wireline services of local telephone companies. The FCC currently is
undertaking a rulemaking proceeding in which it is considering actions to help
ensure that competitive telecommunications providers have reasonable and
non-discriminatory access to rights-of-way, buildings, rooftops and facilities
in multiple tenant environments. In June 1996, the FCC adopted rules requiring
broadband PCS and other commercial mobile radio service providers to implement
enhanced emergency 911 capabilities within 18 months after the effective date of
the FCC's rules. The FCC revised these rules to extend the compliance deadline
for phase I (requiring carriers to transmit a caller's phone number and general
location to a Public Safety Answering Point until January 1, 1999 and for phase
II (requiring more precise location information be provided to the Public Safety
Answering Point until October 1, 2001. Carriers are required to begin selling
and activating Automatic Location Identification capable handsets no later than
March 1, 2001. Further waivers of the enhanced emergency 911 capability
requirements may be obtained by individual carriers by filing a waiver request.
Congress recently enacted legislation that extends to wireless carriers the same
level of immunity from lawsuits that is enjoyed by traditional telephone
companies regarding their transmission of emergency calls. Wireless carriers
also face certain statutory and regulatory requirements regarding accessibility
of wireless services to persons with disabilities.
COMMUNICATIONS ASSISTANCE FOR LAW ENFORCEMENT ACT
The Communications Assistance for Law Enforcement Act, enacted in 1994 to
preserve electronic surveillance capabilities authorized by Federal and state
law, requires telecommunications carriers to meet certain "assistance capability
requirements" by October 25, 1998. However, the FCC granted a blanket extension
of that deadline until June 30, 2000, because the Communications Assistance for
Law Enforcement Act compliant equipment is not yet available. The Communications
Assistance for Law Enforcement Act provides that a telecommunications carrier
meeting industry Communications Assistance for Law Enforcement Act standards
shall have safe harbor for purposes of compliance with the act. Toward the end
of 1997 telecommunications industry standard-setting organizations agreed to a
joint standard to implement the act's capability requirements, known as
J-STD-025. Although we will be able to offer traditional electronic surveillance
capabilities to law enforcement, it, as well as the other participants in the
wireless industry, may not meet the requirements of J-STD-025 by June 30, 2000,
given hardware changes that are yet to be developed and implemented by switch
manufacturers. For commercial mobile radio service carriers, implementation of a
packet-mode capability and six Department of Justice/Federal Bureau of
Investigation "punch list" capabilities must be completed by September 30, 2001.
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In addition, the FCC is considering petitions from numerous parties to
establish and implement technical compliance standards pursuant to the
Communications Assistance for Law Enforcement Act requirements. The capability
and capacity requirements of the Communications Assistance for Law Enforcement
Act are likely to impose some additional switching and network costs upon us,
Sprint PCS and other wireless entities. However, it is possible that some of
these costs will be reduced or delayed if current law enforcement or legislative
initiatives are adopted and implemented during 2000 or thereafter.
OTHER FEDERAL REGULATIONS
Wireless systems must comply with certain FCC and Federal Aviation
Administration regulations regarding the siting, lighting and construction of
transmitter towers and antennas. In addition, certain FCC environmental
regulations may cause certain radio communications site locations to become
subject to regulation under the National Environmental Policy Act. The FCC is
required to implement the act by requiring carriers to meet certain land use and
radio frequency standards.
REVIEW OF UNIVERSAL SERVICE REQUIREMENTS
The FCC and the states are required to establish a "universal service"
program to ensure that affordable, quality telecommunications services are
available to all Americans. Sprint PCS is required to contribute to the federal
universal service program as well as existing state programs. The FCC has
determined that the Sprint PCS' "contribution" to the federal universal service
program is a variable percentage of "end-user telecommunications revenues."
Although many states are likely to adopt a similar assessment methodology, the
states are free to calculate telecommunications service provider contributions
in any manner they choose as long as the process is not inconsistent with the
FCC's rules. At the present time it is not possible to predict the extent of the
Sprint PCS total federal and state universal service assessments or its ability
to recover from the universal service fund.
PARTITIONING; DISAGGREGATION
The FCC has modified its rules to allow broadband PCS licensees to partition
their market areas and/or to disaggregate their assigned spectrum and to
transfer partial market areas or spectrum assignments to eligible third parties.
WIRELESS FACILITIES SITING
States and localities are not permitted to regulate the placement of
wireless facilities so as to "prohibit" the provision of wireless services or to
"discriminate" among providers of such services. In addition, so long as a
wireless system complies with the FCC's rules, states and localities are
prohibited from using radio frequency health effects as a basis to regulate the
placement, construction or operation of wireless facilities. These rules are
designed to make it possible for us, Sprint PCS and other wireless entities to
acquire necessary tower sites in the face of local zoning opposition and delays.
The FCC is considering numerous requests for preemption of local actions
affecting wireless facilities siting.
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EQUAL ACCESS
Wireless providers are not required to provide equal access to common
carriers for toll services. This enables us and Sprint PCS to generate
additional revenues by reselling the toll services of Sprint PCS and other
long-distance carriers from whom we can obtain favorable volume discounts.
However, the FCC is authorized to require unblocked access to toll carriers
subject to certain conditions.
STATE REGULATION OF WIRELESS SERVICE
Section 332 of the Communications Act preempts states from regulating the
rates and entry of commercial mobile radio service providers. However, states
may petition the FCC to regulate such providers. The FCC may grant such petition
if the state demonstrates that:
- market conditions fail to protect subscribers from unjust and unreasonable
rates or rates that are unjustly or unreasonably discriminatory; or
- when commercial mobile radio service is a replacement for traditional
telephone service within the state.
To date, the FCC has granted no such petition. To the extent we provide
fixed wireless service, we may be subject to additional state regulation. These
standards and rulings have prevented states from delaying the entry of wireless
personal communications services and other wireless carriers into their
jurisdictions via certifications and similar requirements, and from delaying or
inhibiting aggressive or flexible wireless price competition after entry.
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DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and provisions of our charter
gives effect to the two-for-one stock split, the conversion of our preferred
stock into common stock that will be effected upon consummation of this
offering, the issuance and sale of 12,500,000 shares of common stock in this
offering, and other provisions of our amended and restated certificate of
incorporation.
AUTHORIZED CAPITAL STOCK
Our authorized capital stock consists of:
- 100,000,000 shares of common stock, par value $0.001 per share, of which
62,763,604 shares are outstanding; and
- 10,000,000 shares of preferred stock, par value $0.001 per share, of which
no shares are outstanding.
STOCK RESERVED FOR ISSUANCE
We have reserved 3,765,000 shares of common stock for issuance upon exercise
of outstanding stock options and 4,813,987 shares for issuance upon exercise of
outstanding warrants. We have not reserved any shares of preferred stock for
issuance.
COMMON STOCK
The holders of our common stock are entitled to one vote for each share held
of record on all matters submitted to a vote of our stockholders and do not have
any cumulative rights. Subject to the rights of the holders of any series of
preferred stock, holders of common stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of funds legally
available therefor. Holders of shares of common stock have no preemptive,
conversion, redemption, subscription or similar rights. If we liquidate,
dissolve or wind up, the holders of shares of common stock are entitled to share
ratably in the assets which are legally available for distribution, if any,
remaining after the payment or provision for the payment of all debts and other
liabilities and the payment and setting aside for payment of any preferential
amount due to the holders of shares of any series of preferred stock.
PREFERRED STOCK
Under our certificate of incorporation, the board of directors is
authorized, subject to certain limitations prescribed by law, without further
stockholder approval, from time to time to issue up to an aggregate of
10,000,000 shares of preferred stock. The preferred stock may be issued in one
or more series. Each series may have different rights, preferences and
designations and qualifications, limitations and restrictions that may be
established by our board of directors without approval from the stockholders.
These rights, designations and preferences include:
- number of shares to be issued;
- dividend rights;
- dividend rates;
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- right to convert the preferred shares into a different type of security;
- voting rights attributable to the preferred shares;
- liquidation preferences; and
- terms of redemption.
If our board of directors decides to issue any preferred stock, it may
discourage or make more difficult a merger, tender offer, business combination
or proxy contest, assumption of control by a holder of a large block of our
securities or the removal of incumbent management, even if these events were
favorable to the interests of stockholders. The board of directors, without
stockholder approval, may issue preferred stock with voting and conversion
rights and dividend and liquidation preferences which may adversely affect the
holders of common stock.
WARRANTS
We currently have outstanding warrants to purchase in the aggregate
4,813,987 shares of common stock.
PARIBAS WARRANTS
We issued warrants to purchase 1,148,804 shares of common stock to Paribas
in connection with our prior $25.0 million credit facility. These warrants are
exercisable at a price of $.005 per share and may be exercised at any time on or
before December 28, 2009. Holders of these warrants are entitled to dividends
that are paid with respect to the common stock even if the warrants have not yet
been exercised. We have the option to repurchase all of the warrants held by
Paribas or all of the shares of common stock issued upon the exercise of these
warrants beginning on the sixth anniversary of the date the warrants were
issued. If we exercise this right, we must repurchase the warrants or shares at
price equal to 120% of the market price of our common stock as of the date we
repurchase the warrants or shares.
UNIT WARRANTS
As part of our units offering, we issued and sold warrants to purchase an
aggregate of 4,234,804 shares of our common stock pursuant to a warrant
agreement between us and American Stock Transfer & Trust Company, as the warrant
agent. We have filed a copy of the warrant agreement as an exhibit to the
registration statement, which includes this prospectus. Immediately prior to the
offering, we expect to amend the warrant agreement to cancel 655,804 of such
warrants subject to the warrant agreement, which were originally issued to
Donaldson, Lufkin & Jenrette Securities Corporation. Warrants to purchase 86,183
shares of our common stock will be reissued to Donaldson, Lufkin & Jenrette
Securities Corporation pursuant to a new warrant agreement as described below
under "--DLJ Warrants."
The holders of the unit warrants are entitled, in the aggregate, to purchase
3,579,000 shares of our common stock, representing approximately 5% of the
issued and outstanding shares of our common stock on a fully diluted basis,
assuming exercise of the Paribas warrants, the DLJ warrants described below, all
options outstanding or that have or may be issued under our equity incentive
plan and the completion of this offering. The unit warrants become exercisable
at any time after April 15, 2001 for a period of ten years from the date of
issuance. The unit warrants
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currently trade in the Private Offerings and Resales trading through Automated
Linkages (PORTAL) market as part of the units with our senior subordinated
discount notes and will not trade separately until the separation date which
shall be the earliest to occur of:
(1) October 8, 2000;
(2) the commencement of the exchange offer with respect to the senior
subordinated discount notes;
(3) the date a shelf registration with respect to the senior subordinated
discount notes is declared effective;
(4) upon an offer to purchase on a change of control or permitted optional
redemption of the senior subordinated discount notes;
(5) an event of default with respect to the senior subordinated discount
notes; and
(6) a date determined by Donaldson, Lufkin & Jenrette Securities Corporation
in its sole discretion.
Each of the warrants, when exercised, will entitle the holder to receive
11.93 fully paid and non-assessable shares of our common stock, at an exercise
price of $11.37 per share, subject to adjustment from time to time in several
circumstances including the following:
(1) the payment by us of dividends and other distributions on our common
stock;
(2) subdivision, combinations and reclassifications of our common stock;
(3) the issuance to all holders of common stock of such rights, options or
warrants entitling them to subscribe for our common stock or securities
convertible into, or exchangeable or exercisable for, our common stock at
a price which is less than the fair market value per share of our common
stock;
(4) certain distributions to all holders of our common stock of any of our
assets or debt securities or any rights or warrants to purchase any such
securities, excluding those rights and warrants referred to in
clause (3) above;
(5) the issuance of shares of our common stock for consideration per share
less than the then fair market value per share of our common stock at the
time of issuance of such convertible or exchangeable security, excluding
securities issued in transactions referred to in clauses (1) through (4)
above, or (6) below; and
(6) the issuance of securities convertible into or exchangeable for our
common stock for a conversion or exchange price plus consideration
received upon issuance less than the then fair market value per share of
our common stock at the time of issuance of such convertible or
exchangeable security, excluding securities issued in transactions
referred to in (1) through (4) above.
The events described above are subject to certain exceptions described in
the warrant agreement including:
- issuances of options, convertible securities or common stock to employees,
directors or consultants of us or any of our subsidiaries pursuant to a
plan approved by our board of directors;
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- rights to purchase common stock pursuant to a plan for reinvestment of
dividends or interest; and
- issuances of common stock, options or convertible securities in connection
with mergers and acquisitions with non-affiliated third parties.
We are required, under the terms of a warrant registration rights agreement
to:
- file a shelf registration statement on or before June 26, 2000 covering
the resale of the unit warrants, the issuance of the common stock issuable
upon exercise of the unit warrants and the resale of the common stock
issuable upon exercise of the unit warrants;
- use our reasonable best efforts to cause the shelf registration statement
to be declared effective under the Securities Act on or before October 8,
2000; and
- keep the shelf registration statement continuously effective until the
date on which all of the unit warrants or shares of common stock issuable
thereunder have been sold pursuant to the shelf registration statement or
the unit warrants have expired.
If we fail to file the registration statement, or fail to cause the
registration statement to become effective, or fail to maintain its
effectiveness as specified above, a registration default shall be deemed to have
occurred and we will be required to pay liquidated damages to each holder of a
unit warrant. The liquidated damages payable to each holder of a warrant will be
in an amount equal to $0.03 per week per unit warrant held by such holder for
each week or portion thereof that the registration default continues for the
first 90-day period immediately following the occurrence of such registration
default. This amount will increase by an additional $0.02 per week per warrant
with respect to each subsequent 90-day period, up to a maximum amount equal to
$0.07 per week per unit warrant. The provision for liquidated damages will
continue until such registration default has been cured. We will not be required
to pay liquidated damages for more than one registration default at any given
time.
DLJ WARRANTS
In connection with our senior subordinated discount notes offering, we
issued to Donaldson, Lufkin & Jenrette Securities Corporation warrants to
purchase an aggregate of 655,804 shares of our common stock. Immediately prior
to the offering, we expect to cancel those warrants and issue new warrants to
Donaldson, Lufkin & Jenrette Securities Corporation to purchase an aggregate of
86,183 shares at an exercise price equal to the initial public offering price
per share. These warrants will be exercisable after the first anniversary of the
consummation of this offering and will expire upon the fifth anniversary of this
offering.
The number of shares into which the warrants are exercisable and the
exercise price are subject to adjustment in the event of:
(1) the payment by us of dividends and other distributions on our common
stock;
(2) subdivisions, combinations and reclassifications of our common stock;
(3) the issuance to all holders of common stock of such rights, options or
warrants entitling them to subscribe for our common stock or securities
convertible into, or exchangeable or exercisable for, our common stock at
a price which is less than the fair market value per share of our common
stock; and
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(4) certain distributions to all holders of our common stock of any of our
assets or debt securities or any rights or warrants to purchase any such
securities, excluding those rights and warrants referred to in
clause (3) above.
The events described above will be subject to certain exceptions described
in the warrant agreement under which the DLJ warrants will be issued, including
issuances of options, convertible securities or common stock to employees,
directors or consultants of us or any of our subsidiaries pursuant to a plan
approved by our board of directors; rights to purchase common stock pursuant to
a plan for reinvestment of dividends or interest; and issuances of common stock,
options or convertible securities in connection with mergers and acquisitions
with non-affiliated third parties.
The warrant agreement under which the DLJ warrants will be issued is also
expected to provide for registration rights with respect to the warrants and
common stock issuable thereunder. It is expected that we will be required to
file a shelf registration statement with respect thereto within 75 days after
the issuance of the DLJ warrants, and we will be required to keep such shelf
registration statement effective for a period of up to five years, subject to
limited exceptions.
REGISTRATION RIGHTS
We have granted registration rights to all of our current stockholders under
a registration rights agreement. Under these agreements, we are required to
register their shares of common stock, upon request. In addition, if we register
any of our securities under the Securities Act for our own account or for the
account of another person, these stockholders are entitled to notice of the
registration and are entitled to include their shares of common stock in the
registration subject to limitations in the case of an underwritten offering.
These stockholders have agreed to waive their registration rights in connection
with any registration statements that we file on behalf of the holders of the
unit warrants or the senior subordinated discount notes. In most circumstances,
we will be required to pay the expense of registering these stockholders'
shares.
ANTITAKEOVER EFFECTS OF DELAWARE LAW
We are subject to the provisions of Section 203 of the Delaware law. Subject
to certain exceptions, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a certain period of time. That period is three years after the
date of the transaction in which the person became an interested stockholder,
unless the interested stockholder attained that status with the approval of the
board of directors or unless the business combination is approved in a
prescribed manner. A "business combination" includes certain mergers, asset
sales and other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with his or her affiliates and associates, owns, or owned
within three years prior, 15% or more of the corporation's voting stock. The
existence of this provision may have an antitakeover effect with respect
transactions not approved in advance by the board of directors, including
discouraging attempts that might result in a premium over the market price for
shares of common stock held by stockholders.
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PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS THAT MAY PREVENT
TAKEOVERS
Our certificate of incorporation contains provisions that may delay, defer
or prevent a change in control of us and make removal of our management more
difficult.
Our certificate of incorporation provides for the division of the board of
directors into three classes, as nearly equal in size as possible, with each
class beginning its three year term in a different year. Our certificate of
incorporation also provides that only the board of directors may fix the number
of directors. Our bylaws provide that a stockholder may nominate directors only
if the stockholder delivers written notice to us not less than 45 days or more
than 75 days before the first anniversary of the date on which we first mailed
our proxy materials for the preceding year's annual meeting. If the date of the
annual meeting is advanced more than 30 days before or delayed more than
30 days after the anniversary of the preceding year's annual meeting, then we
must receive the stockholder's notice not after the later of the ninetieth day
before the annual meeting or the tenth day after the day the public announcement
of the date of the annual meeting is made.
Our certificate of incorporation provides that any newly created
directorship resulting from an increase in the number of directors or a vacancy
on the board of directors may be filled only by vote of a majority of the
remaining directors then in office, even if less than a quorum. Under no
circumstances will our stockholders fill any newly created directorships.
Directors elected to fill vacancy or by reason of an increase in the number of
directors will hold office until the annual meeting of stockholders at which the
term of office of the class to which they have been elected expires. Directors
may be removed from office only for cause and only by the affirmative vote of
80% of the then outstanding shares of stock entitled to vote on the matter.
Our certificate of incorporation provides that any action required or
permitted to be taken by our stockholders may be taken only at a duly called
annual or special meeting of the stockholders, and may not be taken by written
consent of the stockholders. Special meetings may be called only by the Chairman
of the board of directors, if there is one, the President or by a majority of
the board of directors. These provisions could have the effect of delaying until
the next annual stockholders meeting stockholder actions that are favored by the
holders of a majority of the outstanding voting securities. These provisions may
also discourage another person or entity from making an offer to stockholders
for the common stock. This is because the person or entity making the offer,
even if it acquired a majority of our outstanding voting securities, would be
unable to call a special meeting of the stockholders and would further be unable
in most situations to obtain unanimous written consent of the stockholders. As a
result, any meeting as to matters they endorse, including the election of new
directors or the approval of a merger, would have to wait for the next duly
called stockholders meeting.
Our bylaws provide that a stockholder may raise new business at an annual
stockholder meeting only if the stockholder delivers written notice to us not
after the later of ninety days prior to the date of the annual meeting or the
tenth day after the day the public announcement of the date of the annual
meeting is made. The stockholder's notice must provide us with certain
information concerning the nature of the new business, and must disclose certain
information about the stockholder and the stockholder's interest, if any, in the
proposed business matter.
Delaware Law provides that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporation's certificate
of incorporation or bylaws, unless
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the corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. Our certificate of incorporation requires the
affirmative vote of the holders of at least 80% of the outstanding voting stock
to amend or repeal any of the provisions of the certificate of incorporation or
bylaws described above. Except as otherwise provided by law, holders of our
common stock are not entitled to vote on any amendment to our certificate of
incorporation that changes the powers, preferences, rights or other terms of an
outstanding series of our preferred stock, if the holders of the affected series
of preferred stock are entitled to vote on the proposed amendment. The bylaws
may be amended or repealed by the board of directors, except if the bylaw
provisions affect provisions of the certificate of incorporation or bylaws
described above, then the affirmative vote of the holders of at least 80% of the
then outstanding voting stock is required. The 80% stockholder vote would be in
addition to any separate vote that each class of preferred stock is entitled to
that might in the future be required in accordance with the terms of any
preferred stock that might be outstanding at the time any amendments are
submitted to stockholders.
The foregoing provisions, together with the ability of the board of
directors to issue preferred stock without further stockholder action, may delay
or frustrate the removal of incumbent directors or the completion of
transactions that would be beneficial, in the short term, to our stockholders.
The provisions may also discourage or make more difficult a merger, tender
offer, other business combination or proxy contest, the assumption of control by
a holder of a large block of our securities or the removal of incumbent
management, even if these events would be favorable to the interests of our
stockholders.
Our certificate of incorporation requires us to indemnify our directors and
officers to the fullest extent permitted by law. In addition, as permitted by
Delaware law, the certificate of incorporation provides that no director will be
liable to us or our stockholders for monetary damages for breach of certain
fiduciary duties as a director. The effect of this provision is to restrict our
rights and the rights of our stockholders in derivative suits to recover
monetary damages against a director for breach of certain fiduciary duties as a
director, except that a director will be personally liable for:
- acts or omissions not in good faith for which involve intentional
misconduct or a knowing violation of law;
- the payment of dividends or the redemption or purchase of stock in
violation of Delaware law;
- any breach of the duty of loyalty to us or our stockholders; or
- any transaction from which the director derived an improper personal
benefit.
CERTAIN PROVISIONS OF THE SPRINT PCS AGREEMENTS
Pursuant to our management agreements with the Sprint PCS, under specific
circumstances and without further stockholder approval, Sprint PCS may purchase
our operating assets or capital stock for 72% or 80% of the "entire business
value" of UbiquiTel, which includes the value of our right to use the spectrum
licenses, our business operations and other assets more fully described in "The
Sprint PCS Agreements--The Management Agreement." In addition, Sprint PCS must
approve any change of control of our ownership and consent to any assignment of
our
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management agreements with Sprint PCS. Sprint PCS has a right of first refusal
if we decide to sell our operating assets to a third party. We are also subject
to a number of restrictions on the transfer of our business including a
prohibition on the sale of UbiquiTel or our operating assets to competitors of
Sprint or Sprint PCS. These restrictions and other restrictions in our
management agreements with Sprint PCS may limit our ability to sell the business
and may have a substantial anti-takeover effect.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.
LISTING
Our common stock has been approved for listing on the Nasdaq National Market
under the symbol "UPCS."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect market prices of the common stock prevailing from time to time.
Furthermore, because only a limited number of shares will be available for sale
shortly after the consummation of this offering due to certain contractual and
legal restrictions on resale (as described below), sales of substantial amounts
of common stock in the public market after the restrictions lapse could
adversely affect the prevailing market price of the common stock and our ability
to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
62,763,604 shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding exercisable warrants for an
aggregate of 1,148,804 shares. Of these shares, all of the shares sold in this
offering will be freely tradeable without restriction or further registration
under the Securities Act, except that any shares purchased by our affiliates may
generally only be sold in compliance with the limitations of Rule 144 described
below.
SALES OF RESTRICTED SHARES
All of the shares of common stock sold in this offering will be freely
tradeable under the Securities Act, unless purchased by our "affiliates," as the
Securities Act defines that term. In general, under Rule 144 as currently in
effect, a person (or persons whose shares are aggregated), including an
affiliate, who has beneficially owned restricted stock for at least one year is
entitled to sell, within any three-month period, a number of such shares that
does not exceed the greater of:
- one percent of the then outstanding shares of common stock, or
- the average weekly trading volume in the common stock during the four
calendar weeks preceding the date on which notice of such sale is filed.
In addition, under Rule 144(k), a person who is not an affiliate and has not
been an affiliate for at least three months prior to the sale and who has
beneficially owned shares of restricted stock for at least two years may resell
such shares without compliance with the foregoing requirements. In meeting the
one and two year holding periods described above, a holder of restricted stock
can include the holding periods of a prior owner who was not an affiliate.
Additional shares of common stock are available for future grants under our
equity incentive plan. See "Management--2000 Equity Incentive Plan." We intend
to file one or more registration statements on Form S-8 under the Securities Act
to register all shares of common stock subject to outstanding stock options and
common stock granted pursuant to our equity incentive plan that does not qualify
for an exemption under Rule 701 from the registration requirements of the
Securities Act. We expect to file these registration statements as soon as
practicable following the closing of this offering, and such registration
statements are expected to become effective upon filing. Shares covered by these
registration statements will thereupon be eligible for sale in the public
markets subject to the lock-up agreements, to the extent applicable.
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REGISTRATION RIGHTS
Upon the closing of this offering, the holders of approximately
50,263,604 shares of our common stock that are restricted securities will be
entitled to require us to register sales of their shares of common stock with
the Securities and Exchange Commission under a registration rights agreement.
Under this agreement, we are required to register their shares of common stock,
upon request. In addition, if we register any of our securities under the
Securities Act for our own account or for the account of another person, these
stockholders are entitled to notice of the registration and are entitled to
include their shares of common stock in the registration subject to limitations
in the case of an underwritten offering. These stockholders have agreed to waive
their registration rights in connection with any registration statements that we
file on behalf of the holders of the unit warrants or the senior subordinated
discount notes. In most circumstances, we will be required to pay the expense of
registering these stockholders' shares.
LOCK-UP AGREEMENTS
We and all of our current stockholders, members of senior management and
directors have entered into lock-up agreements whereby we have all agreed to
refrain from engaging in any transaction that results in a sale of shares of
common stock. Specifically, during the period beginning from the date of this
prospectus and continuing and including the date 180 days after the date of this
prospectus, none of us will, directly or indirectly offer, pledge, sell,
contract to sell, grant any option, right or warrant to purchase, or otherwise
dispose of any shares of common stock, including but not limited to any common
stock or securities convertible into or exercisable or exchangeable for common
stock which may be deemed to be beneficially owned in accordance with the rules
and regulations of the Securities and Exchange Commission or enter into any swap
or other agreement that transfers, in whole or in part, the economic consequence
of ownership of common stock, or make any demand for, or exercise any right with
respect to, the registration of common stock or any securities convertible into
or exercisable or exchangeable for common stock, without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Donaldson,
Lufkin & Jenrette Securities Corporation has informed us that it has no current
intentions of releasing any shares subject to the lock-up agreements. Any
determination made by Donaldson, Lufkin & Jenrette Securities Corporation to
release any shares subject to the lock-up agreements would be based on a number
of factors at the time of determination, including the market price of the
common stock, the liquidity of the trading market for the common stock, general
market conditions, the number of shares proposed to be sold, and the timing,
purpose and terms of the proposed sales. There are no exceptions to the lock-up
agreements, except for shares disposed of as bona fide gifts approved by
Donaldson, Lufkin & Jenrette Securities Corporation and the transfer of warrants
that were issued to Donaldson, Lufkin & Jenrette Securities Corporation in
connection with our senior subordinated discount notes offering.
Following the lock-up period, 8,834,000 shares of common stock will become
eligible for sale, subject to compliance with Rule 144 of the Securities Act as
described above.
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UNDERWRITING
We and the underwriters named below have entered into an underwriting
agreement covering the common stock to be offered in this offering. Donaldson,
Lufkin & Jenrette Securities Corporation, Banc of America Securities LLC and
DLJDIRECT Inc. are acting as representatives of the underwriters. Each
underwriter has agreed to purchase the number of shares of common stock shown
opposite its name in the following table.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS: SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation....... 7,917,000
Banc of America Securities LLC............................ 3,393,000
DLJDIRECT Inc............................................. 90,000
Chase Securities Inc. .................................... 50,000
Credit Suisse First Boston Corporation.................... 50,000
Credit Lyonnais Securities (USA) Inc. .................... 50,000
Deutsche Bank Securities Inc. ............................ 50,000
First Union Securities, Inc. ............................. 50,000
Goldman, Sachs & Co. ..................................... 50,000
HSBC Securities (USA) Inc. ............................... 50,000
Lehman Brothers Inc. ..................................... 50,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated........ 50,000
Morgan Stanley & Co. Incorporated......................... 50,000
PaineWebber Incorporated.................................. 50,000
Salomon Smith Barney Inc. ................................ 50,000
C.E. Unterberg, Towbin.................................... 50,000
George K. Baum & Company.................................. 25,000
William Blair & Company, L.L.C. .......................... 25,000
J.C. Bradford & Co. ...................................... 25,000
Fahnestock & Co. Inc. .................................... 25,000
First Albany Corporation.................................. 25,000
Gabelli & Company, Inc. .................................. 25,000
Gerard Klauer Mattison & Co., Inc......................... 25,000
Hoak Breedlove Wesneski & Co. ............................ 25,000
Janney Montgomery Scott LLC............................... 25,000
Johnston, Lemon & Co. Incorporated........................ 25,000
Legg Mason Wood Walker, Incorporated...................... 25,000
Parker/Hynter Incorporated................................ 25,000
Pennsylvania Merchant Group............................... 25,000
The Robinson-Humphrey Company, LLC........................ 25,000
Sanders Morris Harris..................................... 25,000
Sands Brothers & Co., Ltd................................. 25,000
Santander Securities...................................... 25,000
Stephens Inc. ............................................ 25,000
----------
Total................................................... 12,500,000
==========
</TABLE>
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The underwriting agreement provides that the obligations of the underwriters
to purchase and accept delivery of the shares are subject to approval by their
legal counsel of legal matters and other conditions. The underwriting agreement
provides that if the underwriters take any of the shares provided in the table
above, then they must take all of these shares. No underwriter is obligated to
take any shares allocated to a defaulting underwriter except under limited
circumstances.
The underwriters will initially offer to sell shares to the public at the
initial public offering price provided on the cover page of this prospectus. The
underwriters may also sell shares to securities dealers at a discount of up to
$0.30 per share from the initial public offering price. Any such securities
dealers may resell shares to certain other brokers or dealers at a further
discount of up to $0.10 per share. After the initial public offering, the
underwriters may change the public offering price and other selling terms
without notice. The underwriters do not intend to confirm sales to any accounts
over which they exercise discretionary authority, and if they do so, they will
not confirm sales to discretionary accounts without the prior specific written
approval of the customer. An electronic prospectus is available on the Web site
maintained by DLJDIRECT Inc.
If the underwriters sell more shares than the total number provided in the
table above, the underwriters have the option to buy up to 1,875,000 additional
shares of common stock from us to cover such sales. They may exercise this
option during the 30-day period from the date of this prospectus. If any shares
are purchased with this option, the underwriters will purchase shares in
approximately the same proportion as provided in the table above.
The following table shows the per share and total underwriting discounts and
commissions that we will pay to the underwriters. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
PAID BY UBIQUITEL
---------------------------
NO EXERCISE FULL EXERCISE
<S> <C> <C>
Per share fees.................................. $ 0.50 $ 0.50
Per share value of securities deemed
underwriting compensation..................... $ 0.22 $ 0.22
---------- -----------
Total......................................... $9,010,000 $10,361,500
========== ===========
</TABLE>
We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be $1,600,000.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.
At our request, the underwriters have reserved shares of common stock
offered by this prospectus for sale at the initial public offering price to our
directors, officers, employees and other persons designated by us who have
expressed an interest in participating in the offering. We expect these persons
to purchase no more than 5% of the common stock offered in the offering. The
number of shares available for sale to the general public will be reduced to the
extent these persons purchase reserved shares. The underwriters will offer
unpurchased reserved shares to the general public on the same basis as the other
offered shares.
127
<PAGE>
We and all of our current stockholders, members of senior management and
directors have agreed that, for a period of 180 days from the date of this
prospectus, we will not, without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation, do either of the following:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of common stock or any securities convertible into
or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock.
Donaldson, Lufkin & Jenrette Securities Corporation has informed us that it
has no current intentions of releasing any shares subject to the lock-up
agreements. Any determination made by Donaldson, Lufkin & Jenrette Securities
Corporation to release any shares subject to the lock-up agreements would be
based on a number of factors at the time of determination, including the market
price of the common stock, the liquidity of the trading market for the common
stock, general market conditions, the number of shares proposed to be sold, and
the timing, purpose and terms of the proposed sales. There are no exceptions to
the lock-up agreements, except for shares disposed of as bona fide gifts
approved by Donaldson, Lufkin & Jenrette Securities Corporation and the transfer
of warrants that were issued to Donaldson, Lufkin & Jenrette Securities
Corporation in connection with our senior subordinated discount notes offering.
In addition, during such period, except for the registration of shares
underlying warrants, the unit warrants, options in our equity incentive plan and
options granted prior to the adoption of that plan, we have also agreed not to
file any registration statement with respect to, and each of our executive
officers and directors and several of our stockholders have agreed not to make
any demand for, or exercise any right with respect to, the registration of any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation.
Either of the foregoing transaction restrictions will apply regardless of
whether a covered transaction is to be settled by the delivery of common stock
or such other securities, in cash or otherwise.
Our common stock has been approved for listing on the Nasdaq National Market
under the symbol "UPCS." In order to meet the requirements for listing the
common stock on the Nasdaq National Market, the underwriters have undertaken to
sell lots of 100 to a minimum of 400 beneficial owners.
Other than in the United States, no action has been taken by UbiquiTel or
the underwriters that would permit a public offering of the shares of common
stock included in this offering in any jurisdiction where action for that
purpose is required. The shares included in this offering may not be offered or
sold, directly or indirectly, nor may this prospectus or any other offering
material or advertisement in connection with the offer and sale of any such
shares be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. This prospectus is not an offer to sell or a
solicitation of
128
<PAGE>
an offer to buy any shares of common stock included in this offering in any
jurisdiction where that would not be permitted or legal.
We expect that delivery of the shares will be made to investors on or about
June 12, 2000.
The underwriters may purchase and sell shares of common stock in the open
market in connection with this offering. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or slowing a decline in the market price of the common stock while
the offering is in progress. The underwriters may also impose a penalty bid,
which means that an underwriter must repay to the other underwriters a portion
of the underwriting discount received by it. An underwriter may be subject to a
penalty bid if the representatives of the underwriters, while engaging in
stabilizing or short covering transactions, repurchase shares sold by or for the
account of that underwriter. These activities may stabilize, maintain or
otherwise affect the market price of the common stock. As a result, the price of
the common stock may be higher than the price that otherwise might exist in the
open market. If the underwriters commence these activities, they may discontinue
them at any time. The underwriters may carry out these transactions on the
Nasdaq National Market, in the over-the-counter market or otherwise.
In April 2000, Donaldson, Lufkin & Jenrette Securities Corporation also
acted as an initial purchaser under our and UbiquiTel Operating Company's sale
of units, for which they received a fee customary for performing such services.
In February 2000, DLJ Merchant Banking Partners II, L.P., an affiliate of
Donaldson, Lufkin & Jenrette Securities Corporation, one of the underwriters for
this offering, entered into a securities purchase agreement with us. Under that
agreement, DLJ Merchant Banking purchased shares of our 7% senior pay-in-kind
non voting convertible preferred stock convertible into 4,220,694 shares of
common stock, which was subsequently converted to voting convertible preferred
stock, referred to as our Series B preferred stock, at a purchase price
equivalent of $5.925 per share of common stock, or $25.0 million in aggregate.
In April 2000, we issued additional shares of Series B preferred stock
convertible into 77,002 shares of common stock to DLJ Merchant Banking to
maintain their percentage ownership in us prior to the completion of our sale of
units. DLJ Merchant Banking also has the right to appoint one of our directors
pursuant to the terms of a stockholders' agreement with us, and it is expected
that, if appointed, this director would be a director, officer, partner,
employee or affiliate of DLJ Merchant Banking. The shares of Series B preferred
stock convert into shares of our common stock automatically upon consummation of
this offering. Pursuant to the terms of the securities purchase agreement
related to the Series B preferred stock, in the event that we do not complete
this offering prior to July 31, 2000, DLJ Merchant Banking has agreed to
purchase additional shares of our Series B preferred stock for an aggregate
purchase price of $100.0 million. DLJ Merchant Banking's agreement to purchase
the additional shares is subject to specified conditions precedent, including a
condition that we have not experienced a material adverse change in our business
or operations.
In addition, Donaldson, Lufkin & Jenrette Securities Corporation was issued
warrants to purchase 655,804 shares of our common stock. Immediately prior to
the closing of the offering, we expect to cancel the warrants and issue new
warrants to Donaldson, Lufkin & Jenrette Securities
129
<PAGE>
Corporation to purchase an aggregate of 86,183 shares of common stock at an
exercise price of $8.00 per share. The warrants will be exercisable at any time
after the first anniversary of the closing of this offering, and will expire on
the fifth anniversary of the closing of this offering.
Each of Donaldson, Lufkin & Jenrette Securities Corporation and DLJ Merchant
Banking have agreed with us not to sell or otherwise transfer the warrants or
shares of common stock held by them and deemed underwriting compensation for a
period of one year following the closing of this offering.
In addition, in February 2000, DLJ Bridge Finance, Inc., an affiliate of
Donaldson, Lufkin & Jenrette, entered into a commitment letter with us with
respect to the purchase of up to $125.0 million of our senior subordinated
increasing rate notes. This commitment letter expired upon the closing of
UbiquiTel Operating Company's senior subordinated discount notes offering. A
commitment fee of $531,250 was paid to DLJ Bridge Finance.
PRICING OF THIS OFFERING
Before this offering, there has been no public market for our common stock.
Consequently, the initial public offering price for our common stock was
determined by negotiation among us and the representatives of the underwriters.
Among the factors considered in determining the public offering price were:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalization and stages of development of other companies
which the representatives of the underwriters believe to be comparable to
us; and
- estimates of our business potential.
Donaldson, Lufkin & Jenrette Securities Corporation and its affiliates
beneficially own more than 10% of our Series B preferred stock and more than 10%
of our senior subordinated discount notes. As a result, this offering must be
conducted in compliance with Rule 2720, the conflict-of-interest rule of the
National Association of Securities Dealers, Inc., the regulatory body that
oversees the compensation paid to underwriters in public securities offerings.
Under these rules, the initial public offering price of the common stock can be
no higher than that recommended by a qualified independent underwriter, as that
term is defined in the NASD's rules. Banc of America Securities LLC has agreed
to serve as qualified independent underwriter and has conducted due diligence
and will recommend the maximum price for the shares of common stock to be
offered hereby.
LEGAL MATTERS
Certain legal matters in connection with the sale of the shares of common
stock offered hereby will be passed upon for UbiquiTel by Greenberg Traurig,
LLP, Tysons Corner, Virginia and for the underwriters by Weil, Gotshal & Manges
LLP, Dallas, Texas and New York, New York.
EXPERTS
The audited consolidated balance sheet of UbiquiTel Inc. and Subsidiaries as
of December 31, 1999, and the related consolidated statements of operations,
stockholders' equity, and cash flows
130
<PAGE>
for the period from inception (September 29, 1999) to December 31, 1999 included
in this prospectus and elsewhere in the registration statement have been audited
by Arthur Andersen LLP, independent certified public accountants as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving such reports.
The financial statements of the Spokane District (wholly owned by Sprint
Spectrum L.P.) as of December 31, 1999 and 1998, and for each of the three years
in the period ended December 31, 1999, appearing in this prospectus and
registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock being offered by this
prospectus. This prospectus does not contain all of the information set forth in
the registration statement. For further information about us and the common
stock, see the registration statement, and its exhibits. Copies of the
registration statement, including exhibits, may be examined without charge in
the Public Reference Section of the Securities and Exchange Commission, 450
Fifth Street, N.W. Room 1024, Washington, DC 20549, and the Securities and
Exchange Commission's Regional Offices located at 500 West Madison Street, Suite
1400, Chicago, IL 60601, and 7 World Trade Center, 13th Floor, New York, NY
10048 or on the Internet at http://www.sec.gov. You can get information about
the operation of the Public Reference Room by calling the Securities and
Exchange Commission at 1-800-SEC-0300. Copies of all or a portion of the
registration statement can be obtained from the Public Reference Section of the
Securities and Exchange Commission upon payment of prescribed fees.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934 and will be
required to file periodic reports, proxy statements and other information with
the Securities and Exchange Commission. Such reports, proxy statements and other
information may also be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, DC 20006.
131
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES AND PREDECESSORS
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UBIQUITEL INC. AND SUBSIDIARIES--CONSOLIDATED FINANCIAL
STATEMENTS
Report of Independent Public Accountants................ F-2
Consolidated Balance Sheets as of December 31, 1999 and
March 31, 2000 (unaudited)............................. F-3
Consolidated Statements of Operations for the period
from inception to
December 31, 1999 and for the three months ended
March 31, 2000
(unaudited)........................................... F-4
Consolidated Statements of Stockholders' Equity for the
period from inception to December 31, 1999 and for the
three months ended March 31, 2000
(unaudited)........................................... F-5
Consolidated Statements of Cash Flows for the period
from inception to December 31, 1999 and for the three
months ended March 31, 2000
(unaudited)........................................... F-6
Notes to Consolidated Financial Statements.............. F-7
SPOKANE DISTRICT--FINANCIAL STATEMENTS
Report of Independent Auditors.......................... F-31
Statements of Assets to be Sold as of December 31, 1999
and 1998 and March 31, 2000 (unaudited)................ F-32
Statements of Revenues and Expenses for the years ended
December 31, 1999, 1998 and 1997 and for the three
months ended March 31, 2000 and 1999 (unaudited)....... F-33
Notes to Statements of Assets to be Sold and Statements
of Revenues and Expenses............................... F-34
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To UbiquiTel Inc.:
We have audited the accompanying consolidated balance sheet of
UbiquiTel Inc. and Subsidiaries (a Delaware Corporation, formerly known as
UbiquiTel Holdings, Inc. (see Note 16)) as of December 31, 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period from inception (September 29, 1999) to December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of UbiquiTel Inc.
and Subsidiaries as of December 31, 1999, and the results of their operations
and their cash flows for the period from inception (September 29, 1999) to
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
Arthur Andersen LLP
New York, New York
March 8, 2000 (except for Notes 15 and 16 which are dated April 12, 2000)
F-2
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 MARCH 31, 2000
------------------ ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $23,959,190 $33,729,232
Accounts receivable....................................... -- 12,181
Inventory................................................. -- 49,649
Due from Sprint PCS....................................... -- 514,500
Prepaid expenses and other assets......................... 35,636 1,490,343
----------- -----------
Total current assets.................................. 23,994,826 35,795,905
PROPERTY AND EQUIPMENT...................................... -- 1,765,949
CONSTRUCTION IN PROGRESS.................................... 4,085,942 7,255,779
DEFERRED FINANCING COSTS, net............................... 2,110,642 7,362,835
OTHER ASSETS................................................ -- 182,390
----------- -----------
Total assets.............................................. $30,191,410 $52,362,858
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 577,216 $ 1,356,443
Due to shareholders....................................... 1,663,441 1,213,747
Due to Lucent Technologies, Inc........................... 3,883,419 2,488,463
Due to SpectraSite Communications, Inc.................... -- 773,330
Accrued interest.......................................... 10,521 --
Dividends payable......................................... 9,030 473,671
----------- -----------
Total current liabilities............................. 6,143,627 6,305,654
----------- -----------
LONG-TERM DEBT.............................................. 5,811,869 5,811,869
----------- -----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE WARRANTS......................................... 2,758,154 2,758,154
----------- -----------
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, par value, $0.001
per share; 90,000,000 shares authorized; 17,008,500
shares issued and outstanding........................... 17,009 17,009
Series B convertible preferred stock, par value, $0.001
per share; 35,000,000 shares authorized; 2,110,347
shares issued and outstanding........................... -- 2,110
300,000,000 shares of voting common stock, par value,
$0.0005 authorized; 6,834,000 shares issued and
outstanding............................................. 3,417 3,417
32,000,000 shares of nonvoting common stock, par value,
$0.0005 authorized; all shares are issued and
outstanding............................................. 16,000 16,000
Additional paid-in-capital................................ 17,428,425 51,310,958
Accumulated deficit during the development stage.......... (1,987,091) (13,862,313)
----------- -----------
Total stockholders' equity............................ 15,477,760 37,487,181
----------- -----------
Total liabilities and stockholders' equity................ $30,191,410 $52,362,858
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE
SHEETS.
F-3
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE FROM THE
INCEPTION THREE MONTHS PERIOD FROM INCEPTION
(SEPTEMBER 29, 1999) ENDED (SEPTEMBER 29, 1999)
TO DECEMBER 31, 1999 MARCH 31, 2000 TO MARCH 31, 2000
--------------------- --------------- ---------------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES................................... $ -- $ 68,519 $ 68,519
COST OF REVENUES........................... -- -- --
----------- ------------ ------------
Gross profit............................. -- 68,519 68,519
OPERATING EXPENSES
General and administrative expenses
excluding non-cash compensation
charges................................ 554,430 906,679 1,461,109
Non-cash compensation for general and
administrative matters................. 1,394,729 -- 1,394,729
Amortization of deferred stock
compensation expense granted to
employees for general and
administrative matters................. -- 118,643 118,643
----------- ------------ ------------
Operating loss......................... (1,949,159) (956,803) (2,905,962)
INTEREST (EXPENSE) INCOME, NET............. (28,902) 35,101 6,199
----------- ------------ ------------
Loss before Extraordinary Item......... (1,978,061) (921,702) (2,899,763)
LESS: PREFERRED STOCK DIVIDENDS PLUS
ACCRETION................................ (9,030) (9,230,641) (9,239,671)
----------- ------------ ------------
LOSS AVAILABLE TO COMMON STOCKHOLDERS...... (1,987,091) (10,152,343) (12,139,434)
EXTRAORDINARY ITEM--WRITEOFF OF DEFERRED
FINANCING COSTS ON EARLY EXTINGUISHMENT
OF DEBT.................................. -- (1,722,879) (1,722,879)
----------- ------------ ------------
NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS............................. $(1,987,091) $(11,875,222) $(13,862,313)
=========== ============ ============
PRO FORMA NET LOSS AND LOSS PER SHARE:
HISTORICAL NET LOSS BEFORE INCOME
TAXES.................................... $(1,987,091) $(11,875,222) $(13,862,313)
PRO FORMA INCOME TAX EFFECTS............. -- -- --
----------- ------------ ------------
PRO FORMA NET LOSS......................... $(1,987,091) $(11,875,222) $(13,862,313)
=========== ============ ============
PRO FORMA BASIC AND DILUTED LOSS PER
SHARE.................................... $ (0.04) $ (0.24) $ (0.28)
PRO FORMA COMMON SHARES OUTSTANDING........ 50,263,604 50,263,604 50,263,604
=========== ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
F-4
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
---------------------- ---------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
----------- -------- ----------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, September 29,
1999 (at inception)...... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of voting common
stock.................. -- -- 6,834,000 3,417 -- -- 3,417
Issuance of non-voting
common stock........... -- -- 32,000,000 16,000 -- -- 16,000
Issuance of Series A
convertible preferred
stock, net of offering
costs.................. 17,008,500 17,009 -- -- 15,294,936 -- 15,311,945
Non-cash compensation for
general and
administrative
matters................ -- -- -- -- 1,394,729 -- 1,394,729
Non-cash compensation for
general and
administrative
matters................ -- -- -- -- 738,760 -- 738,760
Net loss................. -- -- -- -- -- (1,987,091) (1,987,091)
----------- ------- ----------- ------- ----------- ------------ -----------
BALANCE,
December 31, 1999........ 17,008,500 17,009 38,834,000 19,417 17,428,425 (1,987,091) 15,477,760
Issuance of Series B
convertible preferred
stock plus accretion... 2,110,347 2,110 -- -- 33,763,890 -- 33,766,000
Amortization of deferred
stock compensation
expense granted to
employees for general
and administrative
matters................ -- -- -- -- 118,643 -- 118,643
Net loss................. -- -- -- -- -- (11,875,222) (11,875,222)
----------- ------- ----------- ------- ----------- ------------ -----------
BALANCE,
March 31, 2000
(unaudited).............. 19,118,847 $19,119 38,834,000 $19,417 $51,310,958 $(13,862,313) $37,487,181
=========== ======= =========== ======= =========== ============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
F-5
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE FROM THE
INCEPTION THREE MONTHS PERIOD FROM INCEPTION
(SEPTEMBER 29, 1999) ENDED (SEPTEMBER 29, 1999)
TO DECEMBER 31, 1999 MARCH 31, 2000 TO MARCH 31, 2000
--------------------- --------------- ---------------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................... $(1,978,061) $ (921,702) $ (2,899,763)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of deferred financing costs....... 18,381 81,096 99,477
Depreciation................................... -- 24,671 24,671
Non-cash compensation for general and
administrative matters....................... 1,394,729 -- 1,394,729
Non-cash compensation from stock option granted
to employee.................................. -- 118,643 118,643
Changes in operating assets and liabilities:
Accounts receivable............................ -- (12,181) (12,181)
Inventory...................................... -- (49,649) (49,649)
Due from Sprint PCS............................ -- (514,500) (514,500)
Other assets................................... -- (182,390) (182,390)
Prepaid expenses............................... (35,636) (517,435) (553,071)
Accounts payable and accrued expenses.......... 373,534 (232,638) 140,896
Accrued interest............................... 10,521 (10,521) --
----------- ------------- ----------------
Net cash used in operating activities........ (216,532) (2,216,606) (2,433,138)
----------- ------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................. (10,400) (5,400,852) (5,411,252)
----------- ------------- ----------------
Net cash used in investing activities........ (10,400) (5,400,852) (5,411,252)
----------- ------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of senior subordinated
notes and detachable warrants.................. 8,000,000 -- 8,000,000
Deferred financing cost.......................... (734,000) (6,762,500) (7,496,500)
Proceeds from issuance of convertible preferred
stock.......................................... 17,008,500 25,000,000 42,008,500
Proceeds from issuance of common stock........... 19,417 -- 19,417
Offering costs................................... (107,795) (850,000) (957,795)
----------- ------------- ----------------
Net cash provided by financing activities.... 24,186,122 17,387,500 41,573,622
----------- ------------- ----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS.......... 23,959,190 9,770,042 33,729,232
CASH AND CASH EQUIVALENTS, beginning of period..... -- 23,959,190 --
----------- ------------- ----------------
CASH AND CASH EQUIVALENTS, end of period........... $23,959,190 $ 33,729,232 $ 33,729,232
=========== ============= ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest........................... $ -- $ 374,684 $ 374,684
Cash paid for income taxes....................... -- -- --
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Network assets acquired but not paid............. 4,075,542 3,635,147 3,635,147
Extraordinary item--write-off of deferred
financing charge............................... -- 1,722,879 1,722,879
Deferred financing costs incurred but not paid... 825,000 1,118,668 1,118,668
Preferred stock dividends........................ 9,030 464,641 464,641
IPO costs incurred but not paid.................. -- 497,717 497,717
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
F-6
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
UbiquiTel Inc. and Subsidiaries (the "Company") was formed for the purpose
of becoming the exclusive provider of Sprint Personal Communications Services
("PCS") in midsize and smaller markets in the west and midwestern United States.
In October 1998, UbiquiTel L.L.C. (a Washington State Limited Liability
Company), whose sole member was The Walter Group entered into an agreement with
Sprint PCS for no consideration given for the exclusive rights to market
Sprint's 100% digital, 100% PCS products and services to the approximately
1 million residents in the Reno/Tahoe Nevada market. UbiquiTel L.L.C. had no
financial transactions from its inception (August 24, 1998) to September 29,
1999. On September 29, 1999, UbiquiTel Inc. (formerly "UbiquiTel Holdings,
Inc."), a Delaware Corporation, was incorporated. On November 1, 1999, the
Founders' Agreement was executed and common stock was issued to a group of five
shareholders referred to as "the Founders" including The Walter Group. In
November 1999, UbiquiTel L.L.C. assigned all of its material contracts including
the rights to the Sprint PCS agreements to UbiquiTel Inc. On December 28, 1999,
UbiquiTel Inc. amended its agreement with Sprint PCS to expand the Company's
markets to the Northern California, Spokane/Montana, Southern Idaho/Utah/Nevada
and Southern Indiana/Kentucky markets which together with the Reno/Tahoe markets
contain approximately 7.7 million residents.
On November 9, 1999, UbiquiTel Operating Company, Inc. (a Delaware
Corporation, formerly a Delaware Limited Liability Company), was formed to serve
as the operating company for UbiquiTel Inc. Also, on March 17, 2000, UbiquiTel
Leasing Company, (a Delaware Corporation) was formed to serve as the leasing
company for UbiquiTel Inc.
The consolidated financial statements contain the financial information of
UbiquiTel Inc., its subsidiaries, UbiquiTel Operating Company and UbiquiTel
Leasing Company and its predecessor UbiquiTel L.L.C. collectively ("the
Company"). UbiquiTel L.L.C., did not have any operations or financial
transactions for the period from its inception of August 24, 1998 through
December 31, 1999 and no other assets or liabilities existed other than assets
and contingencies under the contracts assigned to UbiquiTel Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information as of March 31, 2000 and for the three months
ended March 31, 2000 is unaudited, but includes all adjustments, consisting only
of normal recurring adjustments, that are considered necessary for fair
presentation of the Company's financial position at March 31, 2000, and the
Company's operations and cash flows for the three
F-7
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
months ended March 31, 2000 in accordance with accounting principles generally
accepted in the United States. Operating results for the three months ended
March 31, 2000 are not necessarily indicative of results that may be expected
for the entire year.
DEVELOPMENT STAGE ENTERPRISE
The Company was established on September 29, 1999 (inception). The Company
has devoted most of its efforts to date on activities such as preparing business
plans, raising capital, and planning the build-out of its PCS network in the
Reno/Tahoe market. From inception through March 31, 2000, the Company has not
generated significant revenues and has incurred expenses of $4,703,559 including
an extraordinary item of in the amount of $1,722,879, resulting in an
accumulated deficit during the development stage of $13,862,313 as of March 31,
2000 after the preferred stock dividends and effects of a beneficial conversion
on Series B Convertible Preferred Stock.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and short-term investments with
original maturities of three months or less.
PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets include costs incurred in connection with
the Company's initial public offering (Note 16). As of December 31, 1999 and
March 31, 2000 (unaudited) these costs amounted to $0 and $937,273,
respectively.
PROPERTY AND EQUIPMENT
Property and equipment are reported at cost less accumulated depreciation.
Costs incurred to design and construct the wireless network in a market are
classified as construction in progress. When the wireless network for a
particular market is completed and placed into service, the related costs are
transferred from construction in progress to property and equipment. Repair and
maintenance costs are charged to expense as incurred; significant renewals and
betterments are capitalized.
Property and equipment are depreciated using the straight-line method based
on estimated useful lives of the assets.
F-8
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Assets lives are as follows:
<TABLE>
<S> <C>
Network equipment....................................... 5-10 years
Computer equipment...................................... 5 years
Furniture and office equipment.......................... 5-7 years
</TABLE>
Leasehold improvements are depreciated over the shorter of the remaining
term of the lease or the estimated useful life of the improvement.
CONSTRUCTION IN PROGRESS
Construction in progress includes equipment engineering and site development
cost in connection with the build out of the Company's PCS network. The Company
will capitalize interest on its construction in progress activities. The
capitalized interest will be recorded as part of the asset to which it relates
and will be amortized over the remaining estimated useful life. At December 31,
1999 and March 31, 2000 (unaudited), no interest costs were capitalized.
ADVERTISING COSTS
Adverting costs are expensed as incurred. The Company did not incur
advertising expense for the period from inception to December 31, 1999 and for
three months ended March 31, 2000.
DEFERRED FINANCING COSTS
Costs incurred in connection with obtaining the Company's senior
subordinated notes and $250.0 million senior secured credit facility are
deferred and will be amortized into interest expense over the term of the
respective financing using the effective interest method. For the period from
inception (September 29, 1999) to December 31, 1999 and for the three months
ended March 31, 2000 (unaudited), amortization amounted to $18,381 and $81,096
respectively, and was included in interest expense.
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires an asset and liability approach which
requires the recognition of deferred tax assets and deferred tax liabilities for
the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. Valuation
F-9
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
allowances will be established when necessary to reduce deferred tax assets to
the amount expected to be realized.
EXTRAORDINARY ITEM
On March 31, 2000, the Company finalized and executed a new $250.0 million
senior secured credit facility and terminated the old $25.0 million credit
facility. Deferred financing costs of $1,722,879 relating to the old facility
were expensed as an extraordinary item during the three month period ended
March 31, 2000.
UNAUDITED PRO FORMA NET LOSS PER SHARE
The Company computes net loss per common share in accordance with Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") and
SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of
SFAS 128 and SAB 98, unaudited pro forma basic and diluted net loss per common
share is computed by dividing the net loss available to common shareholders for
the period by the weighted average number of shares of common stock outstanding
after giving effect to the conversion of preferred stock into common stock upon
an initial public offering and the exercise of warrants to purchase 4,978,150
shares of common stock which was issued in connection with the senior
subordinated note. In accordance with SFAS 128, incremental potential common
shares from stock options has been excluded in the calculation of diluted loss
per share since the effect would be antidilutive. Accordingly, the number of
weighted average shares outstanding as well as the amount of net loss per share
are the same for basic and diluted per share calculations for the period
reflected in the accompanying financial statement.
REVENUE RECOGNITION
The Company will recognize revenue as services are performed. Sprint PCS
will handle the Company's billings and collections and will retain 8% of
collected service revenues from Sprint PCS subscribers based in the Company's
markets and from non-Sprint PCS subscribers who roam onto the Company's network.
The amount retained by Sprint PCS will be recorded as an operating expense.
Revenues generated from the sale of handsets and accessories and from traveling
services provided to Sprint PCS customers who are not based in the Company's
markets are not subject to the 8% service revenue fee for Sprint.
Sprint PCS will pay the Company a Sprint PCS traveling fee for each minute
that a Sprint PCS subscriber based outside the Company's markets travels on to
the Company's portion of the Sprint PCS Network. Revenue from these services
will be recognized as the
F-10
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
services are performed. Similarly, the Company will pay traveling fees to Sprint
PCS, when a Sprint PCS subscriber based in the Company's markets travels on to
the Sprint PCS Network outside of the Company's markets. These costs will be
included as cost of sales when incurred. Traveling fees of $0 and $68,519 were
earned for the period from inception to December 31, 1999 and for the three
months ended March 31, 2000 (unaudited), respectively.
Product revenues consisting of proceeds from sales of handsets and
accessories will be recorded net of allowance for sales returns. There were no
product revenues or related costs for the period from inception to December 31,
1999 and for the three months ended March 31, 2000 (unaudited).
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company accounts for long-lived assets in accordance with the provisions
of Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" ("SFAS
121"). SFAS 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
RISKS AND UNCERTAINTIES
The Company's profitability is dependent upon successful implementation of
the Company's business strategy and development of a sufficient subscriber base.
The Company will continue to incur significant expenditures in connection with
expanding and improving its operations. If these and the other risks included
under "Risk Factors" in the Company's Registration Statement on Form S-1 are not
properly managed and resolved the results could have a material adverse impact
on the Company's financial statements.
CONCENTRATION OF RISK
The Company maintains cash and cash equivalents in accounts with a financial
institution in excess of the amount insured by the Federal Deposit Insurance
Corporation. The Company monitors the financial stability of this institution
regularly and management does not believe
F-11
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
there is a significant credit risk associated with deposits in excess of
Federally insured amounts.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998 and June 1999, the Financial Accounting Standards Board,
commonly referred to as FASB, issued Statements of Financial Accounting
Standards, No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133") and No. 137, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133."
These statements require companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedging accounting.
SFAS 133 will be effective for the Company's fiscal year ending December 31,
2001. Management believes that the adoption of these statements will not have a
significant impact on the Company's consolidated financial results.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities, at the date of the financial statements
and the reported amount of expenses during the reporting period. Actual results
could differ from those estimates.
COMPREHENSIVE INCOME
No statement of comprehensive income has been included in the accompanying
financial statements since the Company does not have any other comprehensive
income to report.
3. SPRINT AGREEMENTS
As of December 28, 1999, the Company signed four major agreements with
Sprint and Sprint PCS. They are the management agreement, the services
agreement, the trademark and service mark license agreement with Sprint and the
trademark and service mark license agreement with Sprint PCS. These agreements
allow the Company to exclusively offer Sprint PCS services in the Company's four
markets--Reno/Tahoe/Northern California; Spokane/ Montana; Southern
Idaho/Utah/Nevada; and Southern Indiana/Kentucky.
F-12
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SPRINT AGREEMENTS (CONTINUED)
The management agreement has an initial term of 20 years with three 10-year
renewals. It can be terminated if either party provides the other with two
years' prior written notice or unless the Company is in material default of its
obligations. The key clauses within the management agreement are summarized as
follows:
(A) EXCLUSIVITY. The Company is designated as the only person or entity
that can manage or operate a PCS network for Sprint PCS in the
Company's markets. Sprint PCS is prohibited from owning, operating,
building or managing another wireless mobility communications
network in the Company's markets while the management agreement is
in place.
(B) NETWORK BUILD-OUT. The management agreement specifies the terms of
the Sprint PCS affiliation, including the required network build-out
plan. The Company has agreed on a minimum build-out plan which
includes specific coverage and deployment schedules for the network
planned within its service area and sets a target date for
completion of June 1, 2005.
(C) PRODUCTS AND SERVICES OFFERED FOR SALE. The management agreement
identifies the products and services that can be offered for sale in
the Company's markets. The Company cannot offer wireless local loop
services specifically designed for the competitive local market in
areas where Sprint owns the local exchange carrier unless the Sprint
owned local exchange carrier is named as the exclusive distributor
or Sprint PCS approves the terms and conditions.
(D) SERVICE PRICING. The Company must offer Sprint PCS subscriber
pricing plans designated for national offerings. The Company is
permitted to establish local price plans for Sprint PCS products and
services only offered in the Company's market. Sprint PCS will
retain 8% of the Company's collected service revenues but will remit
100% of revenues derived from traveling and sales of handsets and
accessories and proceeds from sales not in the ordinary course of
business.
(E) TRAVELING. The Company will earn travel revenues when a Sprint PCS
customer from outside of the Company's markets travels onto the
Company's network. Similarly, the Company will pay Sprint PCS when
the Company's own subscribers use the Sprint PCS nationwide network
outside the Company's markets.
(F) ADVERTISING AND PROMOTION. Sprint PCS is responsible for all
national advertising and promotion of Sprint PCS products and
services. The Company is responsible for advertising and promotion
in the Company's markets.
F-13
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SPRINT AGREEMENTS (CONTINUED)
(G) PROGRAM REQUIREMENTS INCLUDING TECHNICAL AND CUSTOMER CARE
STANDARDS. The Company will comply with Sprint PCS' program
requirements for technical standards, customer service standards,
national and regional distribution and national accounts programs.
(H) NON-COMPETITION. The Company may not offer Sprint PCS products and
services outside the Company's markets.
(I) INABILITY TO USE NON-SPRINT PCS BRANDS. The Company may not market,
promote, advertise, distribute, lease or sell any of the Sprint PCS
products on a non-branded, "private label" basis or under any brand,
trademark or trade name other than the Sprint PCS brand, except for
sales to resellers.
(J) RIGHTS OF FIRST REFUSAL. Sprint PCS has certain rights of first
refusal to buy the Company's assets upon a proposed sale.
The management agreement can be terminated as a result of a number of events
including an uncured breach of the management agreement or bankruptcy of either
party to the agreement. In the event that the management agreement is not
renewed or terminated, certain formulas apply to the valuation and disposition
of the Company's assets.
The services agreement outlines various support services such as activation,
billing and customer care that will be provided to the Company by Sprint PCS.
These services are available to the Company at established rates. Sprint PCS can
change any or all of the service rates one time in each twelve month period. The
Company may discontinue the use of any service upon three months written notice.
Sprint PCS may discontinue a service provided that it gives nine months written
notice. The services agreement automatically terminates upon termination of the
management agreement.
The trademark and service mark license agreements with Sprint and Sprint PCS
provide the Company with non-transferable, royalty free licenses to use the
Sprint and Sprint PCS brand names, the "diamond" symbol and several other
trademarks and service marks. The Company's use of the licensed marks is subject
to adherence to quality standards determined by Sprint and Sprint PCS. Sprint
and Sprint PCS can terminate the trademark and service mark license agreements
if the Company files for bankruptcy, materially breaches the agreement or if the
management agreement is terminated.
F-14
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT
Long-term debt outstanding as of December 31, 1999 and March 31, 2000
(unaudited) is as follows:
<TABLE>
<S> <C>
12% Senior Subordinated Note........................... $ 8,000,000
Less: Discount......................................... (2,188,131)
-----------
Long-term debt..................................... $ 5,811,869
===========
</TABLE>
On November 12, 1999, the Company signed a commitment letter for a Purchase
Agreement with BET Associates, which included an $8,000,000 senior subordinated
note. The Purchase Agreement was finalized and executed on December 28, 1999.
The note bears stated interest at 12% payable quarterly and matures on
December 28, 2007. The first interest payment is due April 1, 2000 for the
period from the closing date through March 31, 2000.
BET Associates also received a warrant to purchase 4,978,150 shares of
voting common stock at a par value of $0.0005 per share and an exercise price of
$0.005 per share with an exercise period of ten years. Of the $8,000,000 in
proceeds received under the purchase agreement, $2,188,131 was allocated to the
detachable warrants based on the fair value of the warrants on the date of
issuance as determined using the Black-Scholes Model (Note 8). The Company also
paid a commitment fee of $160,000 that will be amortized over the term of the
loan.
The proceeds of the note are available to fund capital expenditures related
to the construction of the Company's PCS network for the Reno/Tahoe markets. The
loan agreement requires the Company to adhere to specific financial covenants
including limitation on capital expenditures. The Company is required to prepay
the notes with cash received from the sale of assets or stock or from additional
financings. The notes may be prepaid if the Company completes a private or
public offering of debt or equity of at least $100 million plus a premium of 1%
of the principal amount paid.
On November 15, 1999, the Company signed a commitment letter for a
$25 million Senior Secured Credit Agreement (the "Facility"), with Paribas, as
Administrative Agent, and certain banks and other financial institutions party
thereto. The Facility was finalized and executed on December 29, 1999 (the
"Facility Effective Date"). The Facility provided for (i) a $12.5 million Term
Loan Commitment ("Term Loans") which may be drawn in installments at any time
after the Facility Effective Date through the second anniversary of the Facility
Effective Date and (ii) a $12.5 million Revolving Loan Commitment ("Revolving
Loans") which may be drawn in installments after the date the Term Loans has
been repaid through
F-15
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
the sixth anniversary of the Facility Effective Date. No amounts have been drawn
under this Facility.
Upon acceptance and delivery of this Facility, the Company incurred
financing costs of $1,264,000. In addition, the Company issued Paribas
detachable warrants to purchase 1,148,804 shares of non-voting common stock at a
par value of $0.0005 per share and an exercise price of $0.005 per share with an
exercise period of ten years. The fair value of the warrants of $570,023 have
been determined using the Black-Scholes Model (Note 8).
On February 22, 2000, UbiquiTel Operating Company, the wholly owned
subsidiary of UbiquiTel Inc. received a commitment letter from Paribas, as
Administrative Agent, and certain banks and other financial institutions party
thereto for a $250.0 million senior secured credit facility. UbiquiTel Inc. has
guaranteed the credit facility which was finalized and executed on March 31,
2000 and replaces the previous $25.0 million facility. The credit facility
consists of a revolving loan of up to $55.0 million, a term loan A of
$120.0 million and a term loan B of $75.0 million.
The revolving loan and term loan A will mature in October 2007 and the term
loan B will mature in October 2008. The revolving loans are required to be
repaid beginning in February 2002, in eighteen quarterly consecutive
installments. The term loans A and B are required to be repaid beginning in June
2004 in fourteen and eighteen consecutive quarterly installment, respectively.
The amount of each of the quarterly consecutive installment increases
incrementally in accordance with the credit facility agreement. The amount that
can be borrowed and outstanding under the revolving loans reduces in eight
quarterly reductions of $6.875 million beginning with December 2005.
UbiquiTel Operating Company may borrow funds as either a base rate loan with
an interest rate of prime plus 2.00% for the revolving loans and term loan A and
prime plus 2.50% for term loan B or a Eurodollar Loan with an interest rate of
the London Interbank Offered Rate, commonly referred to as LIBOR, plus 3.25% for
the revolving loans and term loan A and plus 3.75% for term loan B. In addition,
an unused credit facility fee ranging from 0.75% to 1.375% will be charged
quarterly on the average unused portion of the facility.
Initial borrowings of $75.0 million under the term loan B were made on
April 11, 2000. This amount was funded into an escrow account that is controlled
by Paribas and will not be released until specified conditions have been
satisfied. These conditions include, among others, the closing of the
acquisition of the Spokane PCS assets, receipt of $100.0 million in additional
equity financing by July 31, 2000, and evidence that the company has used all
the
F-16
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
proceeds from the Notes. Additional borrowings are subject to these escrow
arrangements and will not be provided until the initial borrowings of
$75.0 million has been released.
In conjunction with the closing of this facility, the company incurred
financing fees of $7,056,168 which are being amortized over the term of the
credit facility. Deferred financing fees of $1,722,879 relating to the old
credit facility have been expensed at March 31, 2000 (unaudited) as an
extraordinary item.
The facility contains customary credit covenants including covenants
limiting indebtedness, dividends and distributions on, and redemptions and
repurchases of, capital stock and other similar payments and various financial
maintenance covenants. The credit facility also contains covenants relating to
the population covered by the Company's network and number of customers and
customary representations, warranties, indemnities, conditions precedent to
borrowing, and events of default.
Proceeds under the Facility are available to fund capital expenditures
related to the construction of the Company's PCS network, the acquisition of
related businesses, working capital needs of the Company, and customer
acquisition costs.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, assumptions, and methods used to estimate the fair
value of the Company's financial instruments are made in accordance with the
requirements of Statement of Financial Accounting Standards No. 107, "Disclosure
about Fair Value of Financial Instruments" ("SFAS 107"). The Company has used
available information to derive its estimates. However, because these estimates
are made as of a specific point in time, they are not necessarily indicative of
amounts the Company could realize currently. The use of different assumptions or
estimating methods may have a material effect on the estimated fair value
amounts.
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................ $23,959,190 $33,729,232
Accounts payable and accrued expenses.... 6,124,076 5,831,983
Accrued interest......................... 10,521 --
Long-term debt........................... 5,811,869 5,811,869
</TABLE>
F-17
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts of cash and cash equivalents, accounts payable and
accrued expenses, and accrued interest are a reasonable estimate of their fair
value due to the short-term nature of the instruments. Long-term debt consists
of the senior subordinated notes.
6. UNAUDITED PRO FORMA BASIC AND DILUTED NET LOSS PER SHARE
Unaudited pro forma basic loss per share amounts are computed by dividing
the net loss by the weighted average number of shares of common stock
outstanding after giving effect to the conversion of preferred stock into common
stock upon an initial public offering and the exercise of warrants to purchase
4,978,150 shares of common stock which was issued in connection with the senior
subordinated note. Diluted loss per share is computed by dividing the net loss
by the weighted average number of shares of common stock outstanding after
giving effect to the conversion of preferred stock into common stock upon an
initial public offering and the exercise of warrants to purchase 4,978,150
shares of common stock which was issued in connection with the senior
subordinated note plus the effects of any potentially dilutive securities. In
the accompanying statements of operations, diluted loss per share does not
include the effects of potentially dilutive securities for all periods presented
as they would have been anti-dilutive in years in which a loss is reported.
The following summarizes the securities outstanding at December 31, 1999 and
March 31, 2000 (unaudited) which are excluded from the loss per share
calculation as amounts would have an anti-dilutive effect.
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
Stock options............................ 3,200,000 3,520,000
Warrants................................. 1,148,804 1,148,804
----------- -----------
Total................................ 4,348,804 4,668,804
=========== ===========
</TABLE>
7. STOCKHOLDERS' EQUITY
COMMON STOCK
On November 1, 1999, the Company issued 6,834,000 shares of voting common
stock to a group collectively referred to as the Founders at a par value of
$0.0005 per share as compensation for the Founders' efforts prior to that time
and for the assignment of the Sprint
F-18
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
PCS Reno/Tahoe agreement. The fair value at the time of issuance was $0.50 per
share. In accordance with Accounting Principles Board No. 25 "Accounting for
Stock Issued to Employees", the Company recorded compensation of $1,394,729
which is presented as non-cash compensation for general and administrative
matters in the Company's Statement of Operations. For stock issued to
non-employees the company recorded a charge to additional paid in capital of
$738,760 as the founders were involved in raising equity capital for the
Company.
The holders of voting common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders and do not
have any cumulative rights. Subject to the rights of the holders of any series
of preferred stock, holders of voting common stock are entitled to receive
ratably such dividend as may be declared by the board of directors out of funds
legally available. Holders of shares of voting common stock have no preemptive,
conversion, redemption, subscription or similar rights. If the Company
liquidates, dissolves, or winds up, the holders of shares of voting common stock
are entitled to share ratably in the assets which are legally available for
distribution, if any, remaining after the payment or provision for the payment
of all debts and other liabilities and the payment and setting aside for payment
of any preferential amount due to the holders of shares of any series of
preferred stock. The vested, nonvoting common stock are identical in all
respects to the voting common stock except that holders of shares of nonvoting
common stock shall not have the right to vote on any matters submitted to a vote
by the Company's stockholders.
On November 1, 1999, the Company issued 32,000,000 non-vested shares of
non-voting common stock to the Founders at a par value of $0.0005 per share.
These shares were issued to retain the Founders 13.4% ownership interest in the
event the Company issues additional stock and equity securities. Any non-voting
common stock that vests will automatically be converted to voting common stock.
At December 31, 1999 and March 31, 2000 (unaudited) none of the non-voting
common stock was vested. Upon completion of the initial public offering, any
remaining non-vested shares of non-voting common stock will be forfeited.
CONVERTIBLE SERIES A AND SERIES B PREFERRED STOCK
On September 30, 1999, the Company entered into an escrow agreement with a
group of investors intending to subscribe for and purchase a total of
$17,000,000 of the Company's Series A Preferred Stock. The investors agreed to
deposit its subscription amount in escrow pursuant to which the subscription
payments would be held until the closing of the purchase of the Series A
Preferred.
F-19
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
On November 23, 1999, the Company entered into a Series A Preferred Stock
Agreement (the "Agreement") for a total of 17,008,500 shares of Series A
Preferred Stock at a purchase price of $1.00 per share. Subject to the terms of
the Agreement, $1,000,000 of Series A Preferred Stock was purchased on
November 23, 1999 when the Company had firm commitments for at least
$33 million in senior and subordinated debt financing, (see Note 4) and the
balance of $16,008,500 of Series A Preferred Stock was purchased on
December 23, 1999, prior to the execution of the senior and subordinated debt
financing which occurred by December 31, 1999. Each share of the Series A
Preferred Stock is convertible at any time after the date of issuance into
common stock at an initial conversion price of $0.50 as adjusted for the 2-for-1
stock split subject to adjustments as defined in the Agreement. In addition,
upon the closing of a qualified initial public offering, as defined in the
Agreement, all outstanding shares of Series A Preferred Stock will automatically
convert into voting common stock at the then effective conversion price.
On February 25, 2000, DLJ Merchant Banking Partners II, L.P. ("DLJ"), an
affiliate of Donaldson, Lufkin & Jenrette, one of the Company's underwriters,
entered into a Securities Purchase Agreement whereby it purchased 2,110,347
shares of 7% Convertible Series B Preferred Stock at a purchase price of $11.84
per share, or $25 million in aggregate. Each share of Series B Preferred Stock
is convertible at any time after the date of issuance into common stock at the
then effective conversion price. DLJ also committed to purchase 11,837,024
shares of Convertible Series B Preferred Stock at a purchase price of $8.46 per
share, or $100 million in aggregate, in the event the Company does not
consummate the initial public offering. In accordance with the EITF 98-5 upon
issuance of the Series B Preferred Stock the Company had a beneficial conversion
resulting in a discount of $8,766,000 which is recognized as a return to the
preferred shareholder during the three month period ended March 31, 2000.
DIVIDENDS
Holders of Series A and B Convertible Preferred Stock are entitled to
receive cumulative dividends at a rate of 7% per annum out of any assets of the
Company. The cumulative accrued dividends at March 31, 2000 (unaudited) are
$473,671.
The discount of $8,766,000 resulting from the allocation of the proceeds
from the Series B Convertible Preferred Stock to the beneficial conversion
feature is included in preferred stock dividends for the three months ended
March 31, 2000 (unaudited).
F-20
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. REDEEMABLE WARRANTS
At December 31, 1999 and March 31, 2000 (unaudited), the Company had
outstanding warrants to purchase 4,978,150 shares of voting common stock and
1,148,804 shares of non-voting common stock. The warrants to purchase 4,978,150
shares of voting common stock were issued to BET Associates in connection with
the issuance of the $8.0 million 12% senior subordinated note. The voting stock
warrants contain repurchase provisions similar to those of the non-voting stock
warrants, but the repurchase provisions will expire upon the completion of an
initial public offering.
The warrants to purchase 1,148,804 shares of non-voting common stock were
issued to Paribas in connection with the $25.0 million credit facility. All
warrants are exercisable at $0.005 per share and have a ten-year life. Holders
of the warrants are entitled to dividends that are paid with respect to the
non-voting common stock even if the warrants have not yet been exercised.
Additionally, beginning on the earlier of the fifth anniversary of the date the
warrants were issued or the date the Company experiences a change in control,
the holder of the warrants may require the Company to repurchase at market value
the warrants or any shares of non-voting common stock that were issued to the
holder upon the exercise of the warrants. The Company also has the option to
repurchase all of the warrants or all of the shares of non-voting common stock
issued upon the exercise of the warrants beginning on the sixth anniversary of
the date the warrants were issued. If the Company exercises this right, it must
repurchase the warrants or shares at a price equal to 120% of the market price
of the non-voting common stock as of the date the Company repurchases the
warrants or shares.
The Company's accounting for these warrants at the time of issuance was as
follows:
- The fair market value of the warrants was $2,758,154 and was determined by
using the Black-Scholes model with the following assumptions:
- risk free interest rate of 6.4%,
- expected dividend yield of 0%,
- expected life of five years, and
- expected volatility of 70%
9. STOCK OPTION PLAN
On November 29, 1999, the Company entered into an employment agreement with
its Chief Executive Officer. Under the employment agreement, the company granted
stock options for 2,550,000 shares of common stock at a purchase price of $0.50
per share which
F-21
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLAN (CONTINUED)
the Company believes was the fair market value of the stock at that time. The
options vest in three equal installments over a period of three years.
In 1999, the Company granted an aggregate of 650,000 non-qualified options
to three employees pursuant to its 2000 Stock Equity Incentive Plan. These
options have an exercise price of $0.50 per share and vest over four years.
In January 2000, the Company issued an aggregate of 320,000 non-qualified
options to employees pursuant to its 2000 Stock Equity Incentive Plan. 260,000
of these options had an exercise price that was approximately $7.50 less per
share than the fair market value of the common stock on the date of grant.
Accordingly, the Company will recognize compensation expense of approximately
$1,965,600 over the 48 month vesting period for these options. During the three
months ended March 31, 2000 (unaudited), the Company amortized $118,643 of this
expense. The remaining 60,000 options will have an exercise price equal to the
initial public offering price per share.
In February 2000, the board of directors approved the 2000 Equity Incentive
Plan (the "Plan"). The purpose of the Plan is to attract, retain and reward key
employees, consultants and non-employee directors. A committee consisting of
members from the board of directors administers the Plan. The committee may
grant stock options, stock appreciation rights and other equity-based awards to
eligible persons, as defined in the Plan. The plan authorized up to 4,080,000
shares of common stock for issuance under the Plan and does not include awards
paid in cash.
F-22
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLAN (CONTINUED)
At December 31, 1999 and March 31, 2000 (unaudited), the following is a
summary of the options granted and outstanding:
<TABLE>
<CAPTION>
MARCH 31, 2000
DECEMBER 31, 1999 (UNAUDITED)
---------------------------- ----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- --------------- ---------- ---------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
period -- $ -- 3,200,000 $ .50
Granted 3,200,000 0.50 320,000 1.91
Exercised -- -- -- --
Forfeited -- -- -- --
---------- ---------- ---------- ----------
Outstanding at end of period 3,200,000 $ 0.50 3,520,000 $ 0.63
<CAPTION>
---------- ----------
Options exercisable at end of
<S> <C> <C> <C> <C>
period -- -- -- --
<CAPTION>
---------- ----------
Weighted average fair value of
<S> <C> <C> <C> <C>
options granted during period $ 0.19 $ 6.77
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 2000 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OPTIONS
RANGE OF OUTSTANDING AT WEIGHTED-AVERAGE EXERCISABLE AT WEIGHTED-
EXERCISE MARCH 31, 2000 REMAINING WEIGHTED-AVERAGE MARCH 31, 2000 AVERAGE
PRICES (UNAUDITED) CONTRACTUAL LIFE EXERCISE PRICE (UNAUDITED) EXERCISE PRICE
--------------------- -------------- ---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$0.50 3,200,000 8.7 Years $0.50 -- $0.50
$0.50-$8.00 320,000 8.0 Years $1.91 -- $1.91
</TABLE>
The Company applies Accounting Principles Board No. 25, "Accounting for
Stock Issued to Employees," in accounting for its stock option grants to
employees and directors. Except for the 260,000 options grants discussed above,
no compensation cost has been recognized related to such grants in the
accompanying Statements of Operations for the period from inception through
December 31, 1999 and for the three months ended March 31, 2000 (unaudited). Had
compensation cost for these grants been determined consistent with Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss and basic and diluted loss per share at
December 31,
F-23
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLAN (CONTINUED)
1999 and March 31, 2000 (unaudited) would have increased as indicated in the
following pro forma amounts:
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 2000
1999 (UNAUDITED)
--------------- ---------------
<S> <C> <C>
Net loss:
As reported $(1,987,091) $(11,875,222)
Pro forma $(2,005,033) $(11,886,236)
Pro forma basic and diluted loss
per share:
As reported $ (0.04) $ (0.24)
Pro forma $ (0.04) $ (0.24)
</TABLE>
The fair value of all of the option grants was estimated on the date of grant
using the Black-Scholes model with the following weighted-average assumptions
used for grants:
- weighted-average risk free interest rates ranging from 5.78% to 6.34%,
- expected dividend yields of 0%,
- expected lives ranging from 1.5 years to 2.0 years and
- expected volatility of 70%.
10. INCOME TAXES
Income tax expense (benefit) for the period from inception to December 31,
1999 differed from the amount computed by applying the statutory U.S. Federal
income tax rate of 34% to the loss recorded as a result of the following:
<TABLE>
<S> <C>
Computed "expected" tax expense.......................... $(675,611)
State tax, net of Federal benefit........................ (43,716)
Equity participation compensation expense................ 508,161
Increase in valuation allowance.......................... 211,166
---------
Total income tax expense (benefit)................... $ 0
=========
</TABLE>
Since inception, the Company has generated losses for both book and tax
purposes. The Company has not recorded potential income tax benefits that may be
received and apply
F-24
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
current losses to future years in which the Company has taxable income. Under
accounting rules, these benefits can only be recorded when it is more likely
than not that these benefits will be realized. Since the Company has a limited
operating history, an assessment cannot be determined.
At December 31, 1999, we have net operating loss carryforwards for federal
and state income tax purposes totaling approximately $583,332, which will expire
in 2014. These carryforwards may be limited due to changes in ownership in
accordance with IRS guidelines.
Net deferred tax asset consists of the following amounts of deferred tax
assets and liabilities as of December 31, 1999:
<TABLE>
<S> <C>
Deferred tax asset....................................... $ 211,166
Less: Valuation allowance for deferred tax assets........ $(211,166)
---------
Net deferred tax asset............................... -0-
=========
</TABLE>
11. COMMITMENTS
(a) CAPITAL EXPENDITURE
The Company expects to incur capital expenditures of approximately $120
million in 2000.
(b) LEASES
The Company is obligated under a month-to-month operating lease agreement
for office space with a 30-day termination notice. In addition, the Company is
obligated under an operating lease agreement for three cell sites. Future
minimum annual lease payments under these operating lease agreements for the
next five years and in the aggregate at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31:
<S> <C>
2000...................................................... $ 62,880
2001...................................................... 62,880
2002...................................................... 62,880
2003...................................................... 62,880
2004...................................................... 62,880
Thereafter................................................ 628,880
--------
Total future minimum annual lease payments............ $943,280
========
</TABLE>
F-25
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS (CONTINUED)
Rental expense for all operating leases was $10,400 and $19,950 for the
period from inception through December 31, 1999 and the three months ended
March 31, 2000 (unaudited), respectively.
(c) EMPLOYMENT AGREEMENTS
In November 1999, the Company entered into an employment agreement with its
President and Chief Executive Officer. The employment agreement is for a
three-year term and provides for an annual base salary of $200,000, with a
guaranteed annual increase of 5% over the next two years. In addition to his
base salary, the President and Chief Executive Officer is eligible to receive
bonuses in such amounts and at such times as determined by the disinterested
members of the Board of Directors.
Under the employment agreement, the Company granted stock options to the
purchase up to 2,550,000 shares of common stock at a purchase price of $0.50 per
share. The stock options vest in three equal installments over a period of three
years. The employment agreement provides that the President's employment may be
terminated by the Company with or without cause, as defined in the agreement, at
any time or by the President for any reason at any time upon thirty days'
written notice to the Company. If his employment is terminated by the Company
without cause, he is entitled to receive one year's base salary and benefits,
and all his unvested stock options will immediately vest on the date of
termination. If his employment is terminated by the Company for cause, he is not
entitled to any compensation or benefits other than unpaid salary and benefits
and unreimbursed expenses incurred by him through the date of termination. If he
voluntarily terminates his employment, he is entitled to unpaid salary and
benefits and unreimbursed expenses incurred by him through the date of
termination and vested stock options. The employment agreement also provides
that the President will not compete in the business of wireless
telecommunications either directly or indirectly in the Company's present and
future markets and not disclose any of the Company's confidential information
and not solicit any of the Company's customers or employees during his
employment and for a period of one year after his employment is terminated.
12. DEFERRED FINANCING COSTS
During 1999, the Company incurred fees of $320,000 and $1,809,023 to secure
commitments from lenders related to the 12% senior subordinated note and the
$25.0 million credit facility, respectively. The Company has classified these
charges as deferred financing costs and is amortizing these costs using the
effective interest rate method and the straight-line method, respectively.
F-26
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. DEFERRED FINANCING COSTS (CONTINUED)
On March 31, 2000, the Company replaced the old $25.0 million facility with
a new $250.0 million senior secured credit facility (Note 4). An amount of
$1,722,879 related to the extinguishment of the old facility was expensed as an
extraordinary item during the first quarter. Costs to secure the new facility of
$7,056,168 are included in deferred financing and will be amortized on a
straight-line basis over the term of the new facility.
Amortization of deferred financing charges amounted to $18,381 and $81,096
at December 31, 1999 and March 31, 2000 (unaudited), respectively, and is
included in interest expense.
13. RELATED PARTY TRANSACTIONS
In 1999 and during the three months ended March 31, 2000 (unaudited),
certain shareholders of the Company provided services in connection with
obtaining, negotiating and closing the preferred stock offering and
$250.0 million senior secured credit facility. Fees incurred for those services
amounted to $1,515,000 and $1,000,000, respectively.
In 1999 and the three months ended March 31, 2000 (unaudited), the Company
paid the Walter Group, a shareholder, approximately $148,000 and $12,896,
respectively, for consulting services.
On October 28, 1999, the Company entered into an agreement with a
shareholder, SpectraSite Communications Inc., that owns and operates
communications towers. During 1999, no services were provided to the Company.
For the three months ended March 31, 2000 (unaudited), the Company incurred
costs of $773,330 for capital expenditures made during the period.
14. LITIGATION
On March 9, 2000, a former employee filed a lawsuit alleging breach of
employment contract, tortious interference with contract, fraud, constructive
discharge and specific performance of a contract and is seeking actual and
punitive damages aggregating in excess of $20 million. The Company will
vigorously contest these charges. It is management's opinion that it is too
early in this process to determine the ultimate outcome of this matter.
15. WHOLLY-OWNED OPERATING SUBSIDIARY SUMMARIZED FINANCIAL INFORMATION
On April 11, 2000, UbiquiTel Operating Company, a wholly owned subsidiary of
UbiquiTel Inc., issued 14% Senior Subordinated Discount Notes ("the Notes") with
a maturity value of $300,000,000 and Warrants to purchase 3,579,000 shares of
common stock of
F-27
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. WHOLLY-OWNED OPERATING SUBSIDIARY SUMMARIZED FINANCIAL INFORMATION
(CONTINUED)
UbiquiTel Inc. at an exercise price of $11.37 per share under Rule 144A of the
Securities Act of 1933. The notes were issued at a discount and generated
approximately $152,300,000 in gross proceeds. The proceeds will be used to
partially fund capital expenditures relating to the network build-out, operating
losses, working capital, the acquisition of the Sprint PCS Spokane, Washington
assets, repayment of the $8,000,000 12% Senior Subordinated Note and the related
prepayment fee and other general corporate purposes. The notes have a ten-year
maturity and will accrete in value until April 15, 2005 at an interest rate of
14%. Interest will become payable semiannually beginning on October 15, 2005. Up
to 35% of the notes will be redeemable on or prior to April 15, 2003 from net
proceeds of one or more public equity offerings, other than UbiquiTel Inc.
expected initial public offering. Any remaining notes will be redeemable on or
after April 15, 2005.
Donaldson, Lufkin and Jenrette Securities Corporation served as one of the
Initial Purchasers of the Notes and received a fee of 3.5% of the gross proceeds
and warrants to purchase 86,183 shares of UbiquiTel Inc. common stock at an
exercise price of $8.00 per share.
UbiquiTel Inc. has unconditionally guaranteed the obligations under the
Notes. Separate audited financial statements for UbiquiTel Operating Company as
issuer of the debt are not provided because it is wholly owned by UbiquiTel Inc.
and the guarantees are full and unconditional. UbiquiTel Inc. has no operations
separate from its investment in UbiquiTel Operating Company. The summarized
financial information of UbiquiTel Operating Company
F-28
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. WHOLLY-OWNED OPERATING SUBSIDIARY SUMMARIZED FINANCIAL INFORMATION
(CONTINUED)
as of December 31, 1999 and for the period from November 9, 1999 (inception) to
December 31, 1999, is presented below:
<TABLE>
<CAPTION>
SUMMARIZED BALANCE SHEET DATA DECEMBER 31, 1999
----------------------------- ------------------
<S> <C>
Assets:
Cash and other current assets............................. $23,994,826
Construction in progress.................................. 4,085,942
Deferred financing costs.................................. 2,110,642
-----------
Total assets............................................ $30,191,410
===========
Liabilities and Equity:
Accounts payable and accrued expenses..................... $ 373,575
Due to Lucent Technologies................................ 3,883,419
Due to related parties.................................... 813,441
Accrued interest.......................................... 10,521
Advances from parent...................................... 19,584,045
Senior subordinated debt.................................. 5,811,869
-----------
Total liabilities....................................... 30,476,870
Deficit................................................... (285,460)
-----------
Total liabilities and equity............................ $30,191,410
===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM NOVEMBER 9, 1999
(INCEPTION)
SUMMARIZED STATEMENTS OF OPERATIONS DATA TO DECEMBER 31, 1999
---------------------------------------- ---------------------
<S> <C>
General and administrative expenses................... $257,558
Interest expense...................................... 28,902
--------
Net loss.............................................. $286,460
========
</TABLE>
The Company had previously secured commitments from affiliates of each of
the Initial Purchasers to provide up to $125.0 million of senior subordinated
increasing rate notes. The commitment expired on April 11, 2000 upon the closing
of the Senior Subordinated Discount Note offering. A commitment fee of $625,000
was paid to the Initial Purchasers, of which $531,250 was paid to an affiliate
of Donaldson, Lufkin and Jenrette.
16. SUBSEQUENT EVENTS
In February 2000, the stockholders of the company approved the Board of
Directors decision to change the company's name to UbiquiTel Inc.
The Company has filed a registration statement for equity financing through
an initial public offering. Donaldson, Lufkin & Jenrette Securities Corporation
is the lead underwriter of this offering and will receive a customary
underwriting fee. The Company plans to utilize
F-29
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS (CONTINUED)
the proceeds from the aforementioned offerings to fund the build-out of its
expanded network, operating losses, working capital and other general corporate
purposes. The Company may have a contingent liability arising out of a possible
violation of Section 5 of the Securities Act of 1933 in connection with the
existence of three hyperlinks on the website to an independent unaffiliated
website that included specific articles regarding the Company and the initial
public offering. The Company does not believe that the existence of this
hyperlink caused a violation of Section 5, and if any such claim were asserted,
the Company would contest the matter, vigorously. Accordingly, the Company does
not believe that its exposure, if any, resulting from the existence of this
hyperlink would be material to its results of operations or financial condition.
In January 2000, the Company signed an agreement to purchase from
Sprint PCS the Spokane, Washington market's PCS networks and related assets for
approximately $35 million. The Company closed this transaction on April 15,
2000.
On April 11, 2000, upon the closing of the 14% Senior Subordinated Discount
Notes, the Company issued DLJ Merchant Banking 38,501 additional shares of
preferred stock to maintain a specified percentage stock ownership. Each share
of preferred stock will be converted automatically into two shares of voting
common stock upon the closing of the initial public offering after the effect of
the 2-for-1 stock split.
The Founders Agreement provides that the Founders non-voting common stock
will vest and convert to voting common stock to retain their ownership interest
in the event the Company issues additional shares. As a result of the terms of
the Founders Agreement, in April 2000, an aggregate amount of 136,758 shares of
founders non-voting common stock vested and converted to voting common stock.
The Founders Agreement will terminate upon the earlier of the completion of an
initial public offering, the sale to DLJ Merchant Banking of additional
preferred stock for $100.0 million, or the closing of a private or public equity
financing of at least $100.0 million or November 23, 2000.
In April 2000, the board of directors approved a 2-for-1 stock split
effective immediately prior to the initial public offering. All common stock
shares data and equity securities data except for the convertible preferred
stock have been retroactively adjusted to reflect this change.
F-30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners of Sprint Spectrum L.P.
We have audited the accompanying statements of assets to be sold of the
Spokane District (as described in NOTE 1), which are wholly owned by Sprint
Spectrum L.P. (the Company), as of December 31, 1999 and 1998 and the related
statements of revenues and expenses for each of the three years in the period
ended December 31, 1999. These statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall statements' presentation. We
believe that our audits provide a reasonable basis for our opinion.
As described in NOTE 2, the accompanying statements were prepared for
inclusion in the Registration Statement on Form S-1 of UbiquiTel for purposes of
complying with the rules and regulations of the Securities and Exchange
Commission in lieu of the full financial statements required by Rule 3-05 of
Regulation S-X for the pending transaction between UbiquiTel and the Company.
The statements are not intended to be a complete presentation of the Spokane
District's financial position or results of its operations.
In our opinion, the statements referred to above present fairly, in all
material respects, the assets to be sold of the Spokane District as of
December 31, 1999 and 1998, and the related revenues and expenses for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
Ernst & Young LLP
Kansas City, Missouri
February 29, 2000
F-31
<PAGE>
SPOKANE DISTRICT
(WHOLLY OWNED BY SPRINT SPECTRUM L.P.)
STATEMENTS OF ASSETS TO BE SOLD
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
----------- -------------------------
2000 1999 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Assets:
Property, plant and equipment
Network equipment.......................... $29,246,217 $29,038,828 $25,246,441
Other...................................... 235,232 231,661 185,586
Construction work in progress.............. 166,960 211,167 349,480
----------- ----------- -----------
Total property, plant and equipment.......... 29,648,409 29,481,656 25,781,507
Less: accumulated depreciation............. 10,716,627 9,785,334 6,314,486
----------- ----------- -----------
Net property, plant and equipment............ 18,931,782 19,696,322 19,467,021
Prepaid lease expense.......................... 92,776 87,416 83,767
----------- ----------- -----------
Total assets to be sold........................ $19,024,558 $19,783,738 $19,550,788
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-32
<PAGE>
SPOKANE DISTRICT
(WHOLLY OWNED BY SPRINT SPECTRUM L.P.)
STATEMENTS OF REVENUES AND EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
----------------------- -------------------------------------
2000 1999 1999 1998 1997
---------- ---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Net service revenues.... $1,413,116 $ 953,630 $4,761,949 $2,590,169 $ 679,586
Net equipment
revenues.............. 160,767 182,327 862,978 690,479 566,595
---------- ---------- ---------- ---------- -----------
1,573,883 1,135,597 5,624,927 3,280,648 1,246,181
Expenses:
Cost of services........ 406,447 258,240 2,349,770 1,724,964 1,372,305
Cost of equipment....... 372,691 489,257 2,696,646 2,245,459 1,530,300
Selling, general and
administrative........ 1,213,514 997,380 5,419,104 4,470,494 8,167,807
Depreciation............ 931,293 827,503 3,470,848 3,111,511 2,968,406
---------- ---------- ---------- ---------- -----------
2,923,945 2,572,380 13,936,368 11,552,428 14,038,818
---------- ---------- ---------- ---------- -----------
Expenses in excess of net
revenues................ $1,350,062 $1,436,423 $8,311,441 $8,271,780 $12,792,637
========== ========== ========== ========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-33
<PAGE>
SPOKANE DISTRICT
(WHOLLY OWNED BY SPRINT SPECTRUM L.P.)
NOTES TO STATEMENTS OF ASSETS TO BE SOLD AND STATEMENTS OF REVENUES AND EXPENSES
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. ASSET PURCHASE AGREEMENT
On December 28, 1999, Sprint Spectrum L.P. (the Company) and UbiquiTel Inc.
(UbiquiTel) entered into an Asset Purchase Agreement (the Agreement) whereby the
Company will sell to UbiquiTel certain assets and UbiquiTel will assume certain
leases as stipulated in the Agreement. Under the Agreement, the Company agrees
to sell to UbiquiTel the assets related to its wireless mobile telephone
services in the Spokane, Washington district (the Spokane District), which are
wholly owned by the Company. The assets to be sold to UbiquiTel primarily
consist of property, plant and equipment including network assets and retail
stores located in the Spokane District. Not included in the Agreement are PCS
licenses currently owned by the Company or the existing subscriber base and
related accounts receivable balances, the ownership of which will remain with
the Company. UbiquiTel will assume certain operating leases within the Spokane
District; however, no deferred revenue, commission or other similar liabilities
will be assumed. Under the terms of the Agreement, this transaction is expected
to close on or before April 15, 2000.
Following the close of the pending transaction, UbiquiTel will operate the
Spokane District as a Sprint PCS market through a management agreement with the
Company. Under the terms of this agreement, UbiquiTel will sell wireless mobile
telephone services under the Sprint PCS brand name in exchange for a fee. Also
as part of the agreement, the Company will continue to provide network
monitoring, customer service, billing and collection services to UbiquiTel.
2. BASIS OF PRESENTATION
Historically, financial statements have not been prepared for the Spokane
District as it has no separate legal status or existence. The accompanying
statements of assets to be sold and statements of revenues and expenses of the
Spokane District have been prepared for inclusion in the Registration Statement
on Form S-1 of UbiquiTel for purposes of complying with the rules and
regulations of the Securities and Exchange Commission in lieu of the full
financial statements required by Rule 3-05 of Regulation S-X for the pending
transaction between UbiquiTel and the Company. These statements have been
derived from the historical accounting records of the Company and include
revenues and expenses directly attributable to the Spokane District. Certain
operating expenses that are indirectly attributable to the Spokane District have
been allocated using the methods set forth below. As a result, the statements
may not be indicative of the financial position or operating results of the
Spokane District had it been operated as a separate, stand-alone company.
The unaudited interim financial information presented herein has been
prepared according to accounting principles generally accepted in the United
States. In management's
F-34
<PAGE>
SPOKANE DISTRICT
(WHOLLY OWNED BY SPRINT SPECTRUM L.P.)
NOTES TO STATEMENTS OF ASSETS TO BE SOLD AND STATEMENTS OF REVENUES AND EXPENSES
(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. BASIS OF PRESENTATION (CONTINUED)
opinion, the information presented herein reflects all adjustments (consisting
only of normal recurring accruals) necessary to present fairly the interim
financial position and results of operations of the Spokane District.
PROPERTY, PLANT & EQUIPMENT
The property, plant and equipment balances included in the accompanying
statements of assets to be sold are assets specifically identified within the
Spokane District and that are to be purchased by UbiquiTel pursuant to the
Agreement.
REVENUES
The service revenues included in the statements of revenues and expenses are
those specifically related to subscribers of the Spokane District. Allocations
have been made of certain unbilled revenue and bad debt accruals that are
recorded by the Company at levels above the district level. These allocations
are based on average subscribers of the Spokane District relative to total
subscribers of the Company.
The equipment revenues included in the statements of revenues and expenses
are those specifically related to equipment sales occurring in the Company's
retail stores located in the Spokane District. Also included are revenues from
equipment sales to third-party retailers located within the Spokane District.
COST OF SERVICES AND EQUIPMENT
The cost of services expense in the statements of revenues and expenses
includes those expenses directly attributable to the Spokane District. In
addition, allocations have been made of cost of services incurred at levels
above the district level. These allocations are based on the Spokane District's
directly attributable cost of services relative to the total Company directly
attributable cost of services.
The cost of equipment included in the statements of revenues and expenses
are those specifically related to equipment sold in the Company's retail stores
located in the Spokane District. Also included is the cost of equipment from
equipment sales to third-party retailers located within the Spokane District.
F-35
<PAGE>
SPOKANE DISTRICT
(WHOLLY OWNED BY SPRINT SPECTRUM L.P.)
NOTES TO STATEMENTS OF ASSETS TO BE SOLD AND STATEMENTS OF REVENUES AND EXPENSES
(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. BASIS OF PRESENTATION (CONTINUED)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Direct selling, general and administrative expenses are those costs that
were incurred as a result of providing wireless mobile telephone services in the
Spokane District and which will no longer be incurred by the Company subsequent
to consummation of the pending transaction with UbiquiTel.
Selling, general and administrative expenses of the Company that are
indirectly associated with the Spokane District's operations were allocated to
the Spokane District's statements of revenues and expenses based on reasonable
allocation methods as discussed below. Management believes these allocation
methodologies are reasonable and represent the most appropriate methods of
determining the expenses of the Spokane District.
Sales and marketing expenses included in allocated selling, general and
administrative expenses represent costs of the Company that have been identified
as indirectly attributable to the Spokane District. Such allocations have been
based on the amount of covered population in the Spokane District relative to
the Company's total covered population.
Included in allocated selling, general and administrative expenses are costs
related to the provisioning of customer care activities. These expenses
represent customer care costs of the Company that have been identified as
indirectly attributable to the Spokane District. Such allocations have been
based on the number of subscribers of the Spokane District relative to the
Company's total subscribers.
DEPRECIATION EXPENSE
The depreciation expense included in the statements of revenues and expenses
is specifically related to the assets identified with the Spokane District which
will be purchased by UbiquiTel pursuant to the Agreement.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company recognizes operating revenues as services are rendered or as
equipment is delivered to customers. Operating revenues are recorded net of an
estimate for uncollectible accounts.
F-36
<PAGE>
SPOKANE DISTRICT
(WHOLLY OWNED BY SPRINT SPECTRUM L.P.)
NOTES TO STATEMENTS OF ASSETS TO BE SOLD AND STATEMENTS OF REVENUES AND EXPENSES
(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The cost of property,
plant and equipment is generally depreciated on a straight-line basis over
estimated economic useful lives ranging from seven to 20 years. Repair and
maintenance costs are expensed as incurred.
ADVERTISING
Advertising costs are expensed when the advertisement occurs. Total
advertising expense amounted to $1,034,861 in 1999, $813,563 in 1998 and
$785,492 in 1997.
USE OF ESTIMATES
The statements of assets to be sold and statements of revenues and expenses
are prepared in conformity with accounting principles generally accepted in the
United States. These principles require management to make estimates and
assumptions that affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Also, as
discussed in Note 2, the statements of revenues and expenses include allocations
and estimates that are not necessarily indicative of the costs and expenses that
would have resulted if the Spokane District had been operated as a separate
stand-alone company.
4. OPERATING LEASES
The Spokane District's minimum rental commitments at year-end 1999 for all
non-cancelable operating leases, consisting mainly of leases for cell and switch
sites, are as follows:
<TABLE>
<S> <C>
2000.......................................... $ 262,186
2001.......................................... 136,436
2002.......................................... 126,925
2003.......................................... 129,511
2004.......................................... 133,581
Thereafter.................................... 1,816,302
</TABLE>
The table excludes renewal options related to certain cell and switch site
leases. These renewal options generally have five-year terms and may be
exercised from time to time. The Spokane District's gross rental expense totaled
$592,539 in 1999, $588,657 in 1998 and $530,512 in 1997.
F-37
<PAGE>
SPOKANE DISTRICT
(WHOLLY OWNED BY SPRINT SPECTRUM L.P.)
NOTES TO STATEMENTS OF ASSETS TO BE SOLD AND STATEMENTS OF REVENUES AND EXPENSES
(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
5. CASH FLOWS
The Spokane District's primary requirements for cash have been to fund
operating losses and capital expenditures associated with the network build-out.
Capital expenditures of the Spokane District were $166,753 and $785,463
(unaudited) for the three months ended March 31, 2000 and 1999, and $5,050,843,
$3,368,870 and $19,604,854 for the years ended December 31, 1999, 1998 and 1997,
respectively.
6. IMPACT OF YEAR 2000 (UNAUDITED)
During 1999, the Company completed its remediation and testing of systems
related to its Year 2000 readiness. As a result of those efforts, the Company
experienced no significant disruptions in the mission critical information
technology and non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. The Company is not aware of
any material problems resulting from Year 2000 issues, either with its
equipment, its internal systems, or the equipment and services of third parties.
The Company and UbiquiTel will continue to monitor the mission critical computer
applications of the Spokane District and those of the Spokane District's
suppliers and vendors throughout the year 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly.
7. SUBSEQUENT EVENT (UNAUDITED)
The transaction described in Note 1, whereby the Company was to sell to
UbiquiTel certain assets and UbiquiTel was to assume certain leases as
stipulated in the Agreement, closed on April 15, 2000.
F-38
<PAGE>
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June 7, 2000
[LOGO]
12,500,000 SHARES OF COMMON STOCK
OF
UBIQUITEL INC.
-------------------
PROSPECTUS
-------------------
DONALDSON, LUFKIN & JENRETTE
BANC OF AMERICA SECURITIES LLC
DLJDIRECT INC.
---------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
of the sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or our affairs have not
changed since the date hereof.
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Until July 2, 2000 (25 days after the date of this prospectus), all dealers that
effect transactions in these securities may be required to deliver a prospectus.
This is in addition to the dealer's obligation to deliver a prospectus when
acting as an underwriter in this offering or when selling previously unsold
allotments or subscriptions.
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